QIZ Qualified Industrial Zone in Egypt

QUALIFIED INDUSTRIAL
ZONES IN EGYPT
Opportunities for Export Diversification
July 2015
This publication was produced for review by the United States Agency for International Development. It
was prepared by the advisers supporting USAIDs Trade Facilitation Project in Egypt. The authors views
expressed in this publication do not necessarily reflect the views of USAID or the United States
Government.
QUALIFIED INDUSTRIAL
ZONES IN EGYPT
Opportunities for Export Diversification
Prepared by:
Jeannette Paulino
Stewart Pierce-Gardner
Leanne Sedowski
John Varley
Jaleen Moroney
Submitted to:
USAID
Submitted by:
Nathan Associates Inc.
Under Contract No.
AID-263-C-11-00003
July 12, 2015
Egypt Trade Facilitation Project

Contract No. AID-263-C-11-00003
Contractor: Nathan Associates Inc.
CONTENTS
ABBREVIATIONS
Executive Summary
vi
QIZ Program
vi
Advantages of QIZ Exports
vi
QIZ Exports to Date
vii
1. Background and Approach
USAID Assistance for QIZ
This Assignment
Methodology
2. Brief History of the QIZ
3. Trade Volumes in Perspective
10
4. U.S. Tariffs Overview
12
5. Selected Product Groups
15
Leather Footwear
15
Leather Accessories
17
Light ManufacturingEngineered Products and Electronics
18
Processed Food Products
19
Impact on U.S. Jobs
20
Tranport and Logistics
20
Methodological Limitations
22
6. Conclusions
29
Bibliography
30
Appendix A. Background on the U.S. QIZ Program and Egypt QIZs

Appendix B. Scope of Work
CONTENTS
IV
Appendix C. Trade Data Analysis

Annex D. Text of QIZ Protocol
Appendix E. QIZ Unit Overview
Figures
Figure 2-1. Map of the Designated QIZs in Egypt
4Error! Bookmark not defined.
Figure 2-2. Top 10 Categories of QIZ Exports to the United States, 20052014
Figure 2-3. Top QIZ Exports, by HS 4, 20002014 (2011 base year)
Figure 3-1. Major Suppliers of Apparel to the U.S. Market, 20052014
11
Tables
Table 2-1. Egypts Exports to the United States, 20002014
Table 2-2. Top 10 QIZ Exports to the United States, by HS2 code, 20052014
Table 2-3. Top 10 HS4-Category Exports to the United States, 20002014
Table 3-1. Summary of Egypts Exports to the World and United States
10
Table 4-1. U.S.Tariff Structure (WTO), 2013 Tariff Lines and Import Values (%)
14
Table 5-1. Egypts Exports to the World and the United States, by HS4, 2014
23
Table 5-2. Egypt, Jordan, and Moroccos Exports to the United States, 19962014
23
Table 5-3. Egypts Top Exports of Leather Accessories, 2014
24
Table 5-4. Leather Accessory Exports from Morocco, 20062014
24
Table 5-5. Egypts Top Exports in HS Chapters 84, 85, and 87, by HS 4, 2014
25
Table 5-6. Egypts Top Processed Food Products, by HS4, 2014
26
Table 5-7. Customs and Cost, Insurance, Freight Values for Selected Processed Foods
Products at the HS 4 Level, 2014
27
Table 5-8. Customs and Cost, Insurance, Freight Values for Selected Footwear
Products at the HS 4 Level, 2014
27
Table 5-9. Customs and Cost, Insurance, Freight Values for Selected Leather
Accessories Products at the HS 4 Level, 2014
28
Table 5-10. Customs and Cost, Insurance, Freight Values for Selected Light
Manufacturing Products at the HS 4 Level, 2014
28
ABBREVIATIONS
CBP
Customs and Border Protection
CE
Conformit Europene (European Conformity)
CIF
Cost, Insurance and Freight
FOB
Free On Board
FTA
Free Trade Agreement
GSP
Generalized System of Preferences
HS
Harmonized System (of Customs Codes)
MIFT
Ministry of Industry and Foreign Trade
MITSMEs
Ministry of Industry, Trade, and Small & Medium Enterprises
MFN
Most-Favored Nation
NAV
Not Ad Valorem
NES
Not Elsewhere Specified
QIZ
Qualified Industrial Zone
RMG
Ready-Made Garments
TFP
Trade Facilitation Project
UL
Underwriters Laboratories
U.S.
United States
USAID
United States Agency for International Development
WTO
World Trade Organization
VI
QUALIFIED INDUSTRIAL ZONES IN EGYPT
EXECUTIVE SUMMARY
QIZ PROGRAM
USAID/Egypt asked the Trade Facilitation Project (TFP) to examine the prospects for
diversifying exports under Egypts Qualified Industrial Zone (QIZ) program into four
industrial sectors. The QIZ program was established in 2005 between Egypt, Israel, and the
United States as an amendment to the U.S.-Israel Free Trade Agreement (FTA). Products
manufactured in an Egyptian QIZ can be exported to the United States at a zero tariff rate;
provided the product satisfies QIZ protocol requirements for rules of origin and value addition
(at least 10.5 percent Israeli in a total 35 percent combined Egyptian input by value).
Since 2005, the QIZ program has become a significant channel for Egyptian exports to the
United States, accounting for close to $1 billion of exports annually. QIZ exports make up
about 45 percent of all Egypts exports to the United States, but only about 2 percent of
Egypts total exports. The product sector that has taken the greatest advantage of the QIZ
program has been clothing and textile articles. In 2014, more than $800 million worth of
woven and knitted clothing (were exported from Egypts QIZs to the United States. Few
industries besides RMG manufacturing export under the QIZ program, with non-RMG
products making up less than 6 percent of QIZ exports in 2014.
Diversification of QIZ exports could help create more jobs in the export sector and increase
foreign exchange earnings, which in turn would contribute to economic development and
poverty reduction. Diversification into other sectors should also mitigate risks associated with
market shocks and cyclical shifts in the RMG industry. This report looks at the prospects for
product diversification in four industrial sectors that might benefit from exporting under the
QIZ: footwear, leather accessories, processed foods, and light manufacturing.
ADVANTAGES OF QIZ EXPORTS

The singular advantage of QIZ status for any export firm is that such status qualifies the
firms products (that comply with content requirements) to enter the U.S. marketplace duty
free. This is an advantage sought by importers in the United States as well as exporters in
Egypt. The gross value of QIZ status to an exporter or importer, therefore, depends on the
monetary value of the duty exemptionthe duty they would otherwise have to pay if the
products were not QIZ certified.
The actual value of QIZ status to an exporter is likely to be less than the full tariff value for
several reasons. First, the costs of meeting QIZ requirementssignificantly transforming the
product within the QIZ, meeting Israeli and Egyptian value-added thresholds, and satisfying
rules of originas well as the administrative and logistics costs of locating and producing
within a QIZ. Second, the QIZ-certified import must still compete against imports from other
countries that also have duty-free status. Third, Egypt could be farther from major U.S.
markets (e.g. California and U.S. Western coast) than other countries competing in the same
product categories so that potentially higher shipping costs or less-frequent route service
could reduce the advantage and accrued value of duty-free Egyptian products. It is important
therefore to consider the value of tariff exemptions from the viewpoint of the U.S. importer
who has to pay (or not pay) the tariff to take ownership of the goods. If we assume a certain
good is subject to a tariff rate of 10 percent, for example, and a U.S. buyer can buy that good
EXECUTIVE SUMMARYABBREVIATIONS
VII
from Vietnam for a landed (pre-customs) price in the United States of $200 per unit, the buyer
will be interested in the same product from a QIZ in Egypt only at a landed pre-customs price
of less than $220 per unit.
The United States posted tariff rates on most imports are low, with many products entering at
a zero rate. This fact narrows and reduces the QIZ programs singular advantage. There are
about 17,000 product lines in the Harmonized System (HS) Customs Tariff Code at the 8digit level. Fewer than 4 percent of those product codes carry tariffs higher than 15 percent.
Moreover, the historical trend is that U.S. tariff rates decrease over time. The average tariff on
all imports entering the United States is less than 3 percent.1 So, there is no value to be
derived for the QIZ programs tariff-exempt status for any product that is already entering at a
zero or near-zero tariff rate. Similarly, for any product subject to most-favored nation (MFN)
treatment for which the listed tariff is less than 5 percent or even 10 percent, the QIZ-related
tariff advantage is considered insufficiently attractive to justify a businesss investment.
The QIZ protocol is an extension to the U.S.-Israel FTA; it offers certain tariff-preference
advantages to US importers and Egyptian exporters, but it is only one of 14 FTAs that the
United States has signed with 20 countries.
Many of the more sophisticated U.S. firms importing products from overseas employ experts
who study U.S. customs agreements and compare all the advantages and disadvantages of
importing from a variety of sources. These experts keep track of U.S. trade agreements
tariff advantages and requirementsand consider the overall landed cost of the product in the
United States, including any tariff advantage. In addition, these supply chain managers or
sourcing analysts take into account other important factors, including reliability of supply,
political risk, and instability. So even Egyptian products with certified QIZ status can face
stiff competition for buyers in the United States from producers in other countries with FTAs
or other preferential tariff treatment agreements.
QIZ EXPORTS TO DATE

The first QIZs in Egypt began operating in 2005. Exports rose quickly, to just over $1 billion
per year in 2011, but dropped to $920 million (8.8 percent) by 2014.
The first exporters to make extensive use of the QIZ program were in the RMG industry, and
clothing has been the dominant export ever since. In 2011, more than 95 percent of Egypts
QIZ exports consisted of RMG (woven and knitted clothing). By 2014, that percentage had
decreased to 88 percent.
A small percentage of Egypts QIZ exports is made up of foodprocessed, or otherwise
prepared. Food exports from QIZ increased 4 percent by value from 2011 to 2014, but the
share of food to total exports increased only slightly, from 1.5 percent to 1.7 percent.
Approximately 250 Egyptian companies export annually under the QIZ Protocol out of the
more than 585 firms that have been approved to participate in the program.
1 World Bank. World Development Indicators: Tariff Barriers. 2013. http://wdi.worldbank.org/table/6.6
VIII
For many private sector firms in RMG and other sectors the main factors governing their
decisions to operate under and utilize QIZ status are business competitiveness issues (cost and
market linkages) or the difficulties in meeting specific QIZ requirements for Egyptian and
Israeli value-added content and the cost to import the Israeli content.
For some Egyptian firms furthermore, personal antipathy or public stigma may be attached to
partnering with an Israeli firm, although the QIZ Unit at the Ministry of Industry, Trade, and
Small and Medium Enterprises (MITSMEs) provides trade facilitation services to link Israeli
suppliers to Egyptian producers at arms length.
CONCLUSIONS
Initial research suggests that there are few industries other than RMG where the three factors
of U.S. market demand, the QIZ programs tariff exemption benefits, and the global
competitiveness of Egyptian manufacturers all combine to favor development of export
industries in the QIZ framework.
Engineered or light manufactured products are unlikely to benefit from QIZ status,
because U.S. tariffs on these products are already very low. Egypt has firms that are globally
competitive exporters of engineered products, but the data indicates that these products are
being sold in markets in the European Union and elsewherenot in the United States.
Leather footwear exports are also unlikely to benefit despite high tariffs on a limited set of
items. Most footwear enters the United States at duties of less than 10 percent, and any
footwear exporter from Egypt would face strong competition from the cluster of mega scale
producers in China and East Asia. The Chinese cost advantage over Egyptian producers is
likely greater than 10 percent. Egypt could try for a niche export of certain types of highvalued and high-tariff protected shoes, but this would take investment, time, and resources on
a significant scale. Ideally, Egyptian producers could identify and integrate into a U.S.oriented footwear supply chain, where U.S. firms would support product development in
Egypt while taking advantage of the QIZ program. Egyptian manufacturers today face
problems of scale, quality, cost and environmental pollution (see section below for leather
accessories). Investment would need to be made in new technology to upgrade Egyptian shoe
quality while lowering costs to successfully integrate its products successfully into its supply
chain. The costs to be incurred would be significant in relation to the prospective tariff
advantage.
In general, leather accessories are unlikely to benefit from the QIZ program despite tariffs as
high as 20 percent, because of low-quality inputs and products, and environmental and health
concerns about those products. Cowhides are of low quality and collected semiannually,
skilled and unskilled labor is hard to find, and firms do not use modern production
technology. In addition, tanneries produce cured hides with chemical and dye residue that do
not meet U.S. consumer and environmental protection standards. Some leather accessories are
anecdotally reported to be included in RMG products exported to the United States, such as in
a belt added to a dress, but the belt would be subsumed in the tariff code applicable to the
dress, and these additions cannot be disaggregated using HS codes. What is more, much of
the leather accessories industry is oriented to the European market, with Egyptian shoe, purse,
and luggage producers engaged with Italian buyers and trade shows.
Processed foods present the most likely possibilities for extension of the QIZ program.
Tariffs on some products are high enough to encourage a closer look at the potential
EXECUTIVE SUMMARYABBREVIATIONS
IX
advantages. Although food does not have to be cultivated within a QIZ, the producer must
demonstrate that the food was substantially transformed within the QIZ to receive the
exemption from U.S. Customs. Processed foods have already increased slightly as a share of
total QIZ exports. From an economic development perspective, processed foods offer the
advantages of a better multiplier impact on the Egyptian economy than would an industry
such as leather footwear, which would require the large-scale importation of inputs. The
backward linkages would also probably have a stronger impact on poverty reduction.
Expansion of the QIZ program to Upper Egypt, reducing the value-added or substantial
transformation requirements could increase export diversity as firms export more agricultural
and consumer products. However, if Egyptian firms have not yet managed to generate
significant new QIZ products in the relatively advanced business and manufacturing environs of
existing QIZ zones, it would seem unlikely that they could do so quickly in the less developed
area of Upper Egypt.
1. BACKGROUND AND
APPROACH
The QIZ program in Egypt is a U.S. preference program based on an amendment to the USIsrael Free Trade Agreement (FTA) that grants duty-free treatment to qualifying exports from
Egypt entering the commerce of the United States, provided they meet certain requirements,
including a minimum percentage of inputs from Israel. In Egypt, the program is administered
and overseen by the QIZ Unit in the Ministry of Industry, Trade and SMEs2. In 2014,
$920 million of Egyptian exports to the United States qualified for QIZ status and treatment. 3
USAID ASSISTANCE FOR QIZ

After the signing of the United States-Israeli-Egyptian QIZ protocol in 2005, USAID
supported the thenMinistry of Trade and the QIZ Unit through the Assistance for Trade
Reform (ATR) project. Several USAID projects since then have continued to provide
assistance and study ways of building on the early success of the QIZ program.
The Egypt Trade Facilitation Project (TFP) (AID-263-C-11-0003), implemented by Nathan
Associates Inc., is a USAID technical assistance project that focuses on reducing barriers to
trade and creating more efficient internal and external trading systems. TFP began June 1,
2011 and is contracted to end on July 31, 2015. In 2012, USAID asked TFP to consider what
assistance the QIZ Unit needed to improve efficiency and maximize benefits from the QIZ
Protocol. TFP conducted a rapid assessment of the QIZ Units operations and needs in
December 2012.4
THIS ASSIGNMENT
In May 2015, USAID assigned TFP to update the sections of the 2012 QIZ report related to
prospects for diversifying exports from the QIZ in four product areas: footwear, leather
accessories, processed foods, and light manufacturing products. A copy of the scope of work
for the assignment is in Appendix C. The team carried out most of the research for this
activity in May and June, 2015.
2The QIZ Units main responsibilities are: (1) registration of QIZ companies and Israeli partners; (2)
certification that products comply with protocol requirements; and (3) quarterly reports on quantities exported
prepared for the three partners to the Agreement, USA, Egypt and Israel.
3 Figures from www.qizegypt.gov.eg. Appendix A gives more information about the QIZ program and QIZ unit.
4 The TFP report recommended improving IT equipment and staff training that the TFP project went on to
support with project funds. The report also raised concerns about the lack of sustainable funding for QIZ
operations.
METHODOLOGY
The main objective of this report is to answer the question: Can certification as a QIZ
exporter help an Egyptian firm successfully export selected products to the United States from
one of the following four sectors: footwear, leather accessories, processed foods, and light
manufactured products? The simple question is, Which of these products has a sufficiently
high tariff that QIZ status (which QIZ certified exporters will not have to pay) gives a
sufficient price or margin advantage over non-QIZ suppliers? The more complex question is,
Will QIZ status offer Egyptian producers enough of an advantagecombined with Egypts
own intrinsic competitive advantages (and disadvantages)to enable them to compete
successfully against other global suppliers and win market share in the United States?
The target sectors are very large sectors with many products and product categories.
Moreover, the sectors do not correspond neatly with product grouping categories in the
Harmonized System of Tariff Codes (HS Code) categories used by the Customs authorities of
the United States and the rest of the world. At the broad (4-digit) level of product grouping,
the range of tariffs covering the products in the group is similarly broad, and therefore
summarizing how useful QIZ status might be for the entire group of products is no simple
matter. Most product tariffs are set at the 6, 8, or even 10-digit level levels that carry a more
precise product description. This complicates and increases the scale of the task
exponentially. Egypt exports more than 1,300 engineering products alone, counted by the
number of tariff lines imported to the United States from Egypt at the 8-digit level. One can
sort the tariffs at the 8-digit level and the data on summary aggregations at the 4-digit level to
find useful indications about the structure of tariffs in the category, but always with the caveat
that the definitive answer depends on the actual 8- or 10-digit tariff classification assigned to
the product by customs inspectors at the port of entry.
Even a slight change in how a product is produced or packaged can change the tariff
classification and the applied tariff. The study examined the situation facing categories of
products (at the 4-digit and 6-digit levels) and for a few specific productsdefined at the 8-digit
levelmaking it possible to use the data from the Harmonized System of Tariff Codes (HS
Codes). Even if the posted tariff is not changed, the United States continues to negotiate and
enter into FTAs or preferential trade agreements that allow duty-free or reduced duties on items
from other countries. Egypt will increasingly compete with other countries duty-free access.
The TFP study team reviewed USAID studies and other studies of Egyptian exportsand
QIZ exports specificallyalong with U.S. and Egyptian data on exports to the United States
and to the rest of the world. Unfortunately, each source uses different data collection
methodologies and procedures for what should be the same informationU.S.-reported
imports from Egypt and Egyptian-reported exports to the United States. Discrepancies in
figures between QIZ exports from Egypt and QIZ imports into the United States are due to
different source documents and are noted in each table. The team also interviewed principals
with Egyptian firms, both QIZ exporters and non-QIZ exporters, and other market experts in
Egypt and the United States.
BACKGROUND AND APPROACH
The study team also studied the experience of Jordan, which has had the benefit of both a QIZ
(since 1997) and an FTA (since 2005),5 and the experience of Morocco, which entered into an
FTA with the United States in 2004.6 The experience of these two countries can give some
indications about how their duty-free status has managed to attract investment or catalyze
development in one or more of the industries in question.
5 With implementation phased in; full implementation in 2010.

6 https://ustr.gov/trade-agreements/free-trade-agreements/morocco-fta
2. BRIEF HISTORY OF THE QIZ

The QIZ program in Egypt was first implemented in 2005; by 2011 exports had increased
from $250 million to approximately $1 billion per year, then dropped to $920 million in 2014.
Egypts overall exports to the United States more than doubled in the past 11 years, from
$925 million in 2000 to a peak of $2.9 billion in 2012, before declining to $1.4 billion in 2014
(Table 2-1, see end of this chapter). QIZs have been instrumental in spurring and sustaining
Egyptian export levels. In 2014, a large majority of Egypts exports entered the United States
under the QIZ program (67 percent) and, even as growth in all Egyptian exports fluctuated
between 2007 and 2011, QIZ export growth remained steady. And the growth in the products
driving the increase in Egyptian exportswoven clothing, knitted clothing, and carpetsis
largely attributable to QIZs.
In 2005, the United States initially designated three QIZ areas in Egypt: Greater Cairo,
Alexandria and Suez Canal (69FR4199); Central Delta, Expanded Greater Cairo, and
Expanded Suez Canal (70FR69622). Two additional areas, in Beni Suef and Al Minya, were
designated as QIZs in 2009 (74FR4482) (Figure 2-1).
Figure 2-1. Map of the Designated QIZs in Egypt
The initial QIZ designations applied

to areas with the greatest
concentration of Egyptian
manufacturing capacity, especially
private sector apparel producers
with relationships with U.S. buyers.
These firms had for some time been
laying the groundwork for QIZs.
Therefore, the Egyptian government
and private sector were able to
capitalize on QIZ benefits quickly
without a lag for investing in new
plants, equipment, labor, or market
development.
Growth in QIZ exports from Egypt over the seven-year period since their establishment in
2005 is shown in Figure 2-2 and Table 2-2 (see end of section). Both show the rapid growth
and predominance of woven and knit clothing in the mix of exported products.
BRIEF HISTORY OF THE QIZ
Figure 2-2. Top 10 Categories of QIZ Exports to the United States, 20052014 (US$ million)
1200
Household Goods
Fruit and Nuts
1000
Salt, Sulfur, Earth and Stone

800
Cotton Yarns & Fabric

Vegetables and Tubers
600
Prepared Foods
Other Textiles
400
Carpet
Knitted Clothing
200
Woven Clothing
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
The first QIZs in Egypt began operating in 2005. Exports rose quickly to just over
$1 billion per year in 2011 but dropped to $920 million (8.8 percent) by 2014.
The first exporters to make extensive use of the QIZ program were in the ready-made
garments (RMG) industry. Articles of clothing have been the dominant export ever since.
In 2011, more than 95 percent of Egypts QIZ exports consisted of RMG and household
linens. By 2014, the share of RMG and household linens had decreased to 88 percent of
QIZ exports.
A small percentage of Egypts QIZ exports is made up of foodprocessed, fresh, or

otherwise prepared. Food exports from QIZs have increased 4 percent, but the share of
total exports has increased only slightly from 1.5 percent to 1.7 percent.
Approximately 250 companies of the 585 firms approved by Egypt as eligible for
participation in the QIZ program export annually under the QIZ Protocol.
For many private sector firms, in RMG and other sectors, the main factors and constraints
governing their decisions to operate under and utilize QIZ status are business
competitiveness issues (cost and market linkages) or the difficulties associated with
complying with specific QIZ requirements for value-added of Egyptian and Israeli
content.
For some Egyptian firms, personal antipathy or public stigma may be attached to
partnering directly with an Israeli firm to obtain Israeli-sourced inputs, but the QIZ unit at
the Ministry of Industry, Trade, and Small and Medium Enterprises provides trade
facilitation services to link Israeli suppliers to Egyptian producers at arms length.
Creation of the QIZ program led to an initial surge in production and exports from Egypt in
2005 and 2006. In 2007 and 2008 growth was still remarkable, at 1518 percent annually, but
in 2009 QIZ exports declined 3 percent. QIZ exports rebounded somewhat in 2010, and by
the end of 2011 were 15 percent above 2008 peak levels. From 2011 to 2014, exports
decreased by almost 6 percent to $920 million by 2014.
Upper Egypt does not offer a concentration of existing private sector apparel firms similar to
that found in the first QIZs located in the Cairo, Delta and Suez Canal areas. In addition, Egypt
has thus far not succeeded in diversifying the product composition of its QIZ exports, despite
frequent urgings from the United States. Apart from RMG, the categories of exports to the US
have not seen significant growth. If Egyptian firms have not yet managed to generate significant
new QIZ products in the relatively advanced business and manufacturing environs of existing
QIZ zones, it would seem unlikely that they could do so quickly in the less developed area of
Upper Egypt.
There has been a steady increase since 2005 in certain categories of apparel, most markedly
for woven cotton trousers, but also for other types of trousers and manmade fiber knitted
sweaters (Figure 2-3 and Table 2-3[see end of section]). In 2011, the top 10 products made up
70 percent of QIZ exports and 36 percent of total Egyptian exports to the United States. Since
peaking in 2011, however, exports in woven cotton trousers have declined almost 15 percent,
while many other categories have shown moderate or no growth.
Figure 2-3. Top QIZ Exports, by HS 4, 20002014 (2011 base year) (US$ million)
900
800
M/B undergarments, etc.
700
W/B knitted trousers, etc.
600
M/B woven shirts, etc.

M/B knitted shirts
500
Carpets, etc.
400
T-shirts, etc.
300
M/B knitted trousers, etc.

Sweaters
200
W/G woven trousers, etc.
100
M/B woven trousers, etc.
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
An Upper Egypt QIZ designation would be expected to generate a similar profile of

additional exports to the United States in apparel, textiles, and other productswith related
increases in jobs and investmentas firms seek to capitalize on the regions lower labor
costs. Some owners have mentioned relocating from older QIZs to newer ones in Upper
Egypt. Given the political difficulties of closing operations in Egypt, however, owners
planning to invest in new QIZs will probably do so without liquidating ongoing operations
elsewhere in Egypt. An increase in food-related products exported under QIZ is possible if
expanded to agriculture-intense Upper Egypt, but the challenge of substantially transforming
raw agricultural inputs to meet QIZ requirements could limit growth.
QIZs lend themselves to production of goods that would otherwise be subject to high import
tariffs in the United States. This is particularly the case for products that are not eligible for
GSP treatment, such as textiles and apparel, footwear, and luggage. Egyptian exports of RMG
and textiles are subject to U.S. duties ranging from under 1 percent to over 30 percent, 7 unless
exported from a qualified QIZ exporter. Apparel and textile producers generally suggest that a
7 For example, the U.S. import duty on man-made fiber, knit sweatersEgypts third-largest export category to
the United Statesis 32 percent.
good must be subject to a U.S. tariff of at least 10 percent for them to gain the necessary
margin to compete with lower-cost producers in China and Bangladesh, and to offset the
additional costs of including Israeli inputs. Representatives of Egypts Chamber of Food
Industries note that member companies have generally concluded that QIZs will be of limited
value because most food products likely to be exported are subject to low U.S. tariffs and
high testing costs.8
Proposals have been put forward for expansion of Egypts QIZs. Experience from the 2009
expansion indicates that expansion can be expected to result in additional product exports and
possibly additional diversification, depending on location. The expansion proposed in 2012
was expected to produce additional exports worth about $150 million after two years,
consisting mostly of clothing but also some food products, but the expansion was not
implemented. Recently, the U.S., Egyptian, and Israeli governments have held discussions on
renewing momentum to expand the QIZ program. At the time of the writing of this report, an
agreement had not been reached.
8 U.S. duties on some food items are significant, e.g., the tariff on imports of dried onion and garlic powder
(07122020) is 29.8 percent.
Table 2-1. Egypts Exports to the United States, 20002014 (US$ million)
Import Program
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
899
830
1,317
1,095
1,290
1,745
1,691
1,579
1,413
1,185
1,196
868
1960
657
413
GSP
26
22
24
32
38
65
70
61
57
45
51
49
60
71
67
QIZ
266
643
740
874
848
956
1,009
971
902
920
925
852
1,341
1,127
1,328
2,076
2,404
2,380
2,344
2,078
2,203
1,926
2,991
1,630
1,400
12.8
26.7
31.1
37.3
40.8
43.4
52.4
32
55.3
66.7
All other
Total exports
QIZ exports as a share of
all Egypt exports
Source: Compiled from tariff and trade data from the U.S. Department of Commerce and the U.S. International Trade Commission
Table 2-2. Top 10 QIZ Exports to the United States, by HS2 code, 20052014 (US$ million)
No.
HS 2 Code
62
2
3
Description
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Woven Clothing
134
339
393
420
421
471
496
503
469
437
61
Knitted Clothing
105
251
285
302
307
350
394
355
320
375
57
Carpet
17
25
49
57
55
63
Other textiles
12
34
42
43
35
39
40
28
35
26
20
Prepared Foods
07
Vegetables and tubers
52
Cotton Yarns & Fabric
25
Salt, Sulfur, Earth and Stone
08
Fruit and nuts
10
94
Household Goods
All Other
12
92
67
60
30
16
Top 10 QIZ exports total
253
630
732
779
777
894
978
952
895
920
Source: Tariff and trade data is from the U.S. Department of Commerce and the U.S. International Trade Commission via usitic.dataweb.gov
Table 2-3. Top 10 HS4-Category Exports to the United States, 20002014 (US$ million)
No.
HS 4 Code
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
6203
M/B woven trousers, etc.
63
160
192
211
216
212
251
272
225
230
6204
W/G woven trousers, etc.
56
131
155
167
171
216
194
174
192
157
6110
Sweaters
38
88
95
106
97
99
117
95
90
107
6103
M/B knitted trousers, etc.
23
27
27
43
48
57
53
58
84
6109
T-shirts, etc.
33
33
43
52
70
61
52
47
59
5703
Carpets, etc.
6105
M/B knitted shirts
6205
6104
10
6107
M/B undergarments, etc.
Subtotal
Description
12
37
41
38
14
39
43
38
27
33
35
32
31
38
M/B woven shirts, etc.
25
28
28
22
26
34
36
29
31
W/G knitted trousers, etc.
21
29
24
18
29
47
38
27
27
10
15
21
25
29
25
33
32
26
201
530
618
667
674
768
833
822
772
797
3. TRADE VOLUMES IN
PERSPECTIVE
Egypts nearly $1 billion in QIZ exports in 2014 made up 81.5 percent of the countrys total
exports to the United States (see Table 3-1). With RMG accounting for close to 90 percent of
total QIZ exports, the QIZ program is obviously of chief importance to Egyptian producers in
these sectors. 9
Table 3-1. Summary of Egypts Exports to the World and United States
Egypt Exports (US$ million)

Destination
World, Total
United States, Total
United States, under QIZ
2009
2011
2014
24,182
31,582
26,812
1,633
1,819
1,129
848
1,099
920
Exports to U.S. as %
of Total Exports
2011
2014
Imports from Egypt as

% of Total U.S.
Imports
2011
2014
6.30%
4.21%
0.90%
0.06%
3.48%
3.43%
0.05%
0.039%
Note: There are data discrepancies between USITC import data reported in Table 2-1 and UN Comtrade Data reported in Table 3-1.
The authors attempted to use a consistent data source in each table and the most reliable for the type of comparison being conducted.
Source: UN Comtrade Data and U.S. Department of Commerce Data
Compared to other export destinations, however, the United States is not a large market for
Egyptian exports. Egypts total exports (QIZ plus all other) to the United States accounted for
4.2 percent of its exports to the world in 2014, down from 6.3 percent in 2011 (Figure 3-1).
And Egypts QIZ exports to the United States represented only 3.4 percent of total Egyptian
exports in 2014, slightly up from 3.3 percent in 2011. Egypts most significant trade partners
are Italy, India, and Saudi Arabia, which together account for 22 percent of Egypts exports.
Moreover, when compared to the value of all goods imported into the United States in 2014
($2.3 trillion), the share of U.S. imports that come from Egypts QIZs is miniscule. Egypts
total exports to the United States in 2014 ($1.1 billion) accounted for 0.06 percent of all U.S.
imports that year, and imports under the QIZ preference program were two-thirds of that
(0.039 percent)less than one-half of 1 percent. From the U.S. perspective, in the apparel
sector, China, Vietnam, Indonesia, Mexico, and Bangladesh are the five largest suppliers of
apparel, and Egypt ranks 17th. Figure 3-1 shows the top five suppliers to the U.S. market,
plus Egypt and all other suppliers.
9 RMG
is used here as the sum of HS codes for woven and knitted clothing. Household linens are
mainly other textiles, sheets and towels, excluding carpets and rugs.
TRADE VOLUMES IN PERSPECTIVE
Millions
Figure 3-1. Major Suppliers of Apparel to the U.S. Market, 20052014 (US$ million)
2,500
2,000
All Other
Egypt
1,500
Germany
Japan
1,000
Mexico
Canada
China
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
4. U.S. TARIFFS OVERVIEW

The first thing to note about providing preferential tariff treatment to Egyptian exports to the
U.S. market is that except for a few product categories, U.S. tariffs are already low and have
tended to decrease over time. This trend reduces the absolute and relative advantage of any
preferential treatment, including tariff-free access. The second thing to note is that even for
products with U.S. tariffs that might seem significant (>20 percent) the United States has
entered into FTAs and other agreements with a number of countries. For each FTA, with
some variation in value-added minimums and rules-of-origin requirements, export firms in
that favored nation can compete with Egyptian QIZ exports on a duty-exempt footing. As of
this writing, the United States had signed 14 FTAs with 20 countries.
The World Trade Organization (WTO) tracks tariffs in its member countries. The 2014 WTO
report on the United States indicates less than 3.2 percent of agricultural items imported into
the United States (at the 8-digit HS code level) were subject to a tariff higher than 15 percent.
Of nonagricultural goods, 3.9 percent were subject to such a tariff rate. More than 40 percent
of agricultural products and almost 49 percent of nonagricultural products entered the United
States tariff free in 2012 (see Table 4-1 at the end of the chapter).10
This does not mean there are no examples of U.S. imports subject to high tariffs. Major
product groups entering the United States are still subject to significant tariffs and/or quotas,
including dairy products, sugar and confectionary products, raw agricultural products, leather,
footwear, and RMG. The high tariffs that continue to be applied to RMG are one reason RMG
has been so successful in Egypts QIZs.
To evaluate the potential tariff benefit afforded by QIZ status for an Egyptian exporter, one
has to know the exact tariff that would be applied to the product made in the QIZ. This is
difficult to do in the abstract, because tariffs are applied using a very specific determination of
the material composition at a highly defined level of product. There are thousands of such
codes, each corresponding to a different product description; for example:
HS Code 6403.99.6075corresponds to Mens Sandals or Flip Flops with leather

uppers and plastic or rubber solethe applicable tariff is 8.5 percent ad valorem.
HS Code 6403.20.00corresponds to Sandals or Flip Flops with straps for the instep
and big toecan enter the U.S. tariff-free.
10 World Tariff Profiles, 2014. World Trade Organization.
https://www.wto.org/english/res_e/publications_e/world_tariff_profiles14_e.htm
U.S. TARIFFS OVERVIEW
HS Code 6404.20.6060corresponds to a Womans shoe, with outer soles of leather or

composition leather and textile uppers, not otherwise specifiedthe applicable tariff is
37.5 percent ad valorem.
These very specific product descriptions can make it difficult for exporters to be certain of the
applicable tariff for their products. It is not unusual for a firm or country to ask U.S. Customs
for guidance or a preliminary tariff ruling before attempting to export.11 Although identifying
the specific tariff for leather accessories and garments is relatively straightforward, for other
categories such as footwear and processed foods identifying the specific category is difficult.
Processed foods are addressed in 24 HS chapters, making it challenging to come to a
conclusion about tariffs affecting products in this sector that might benefit from QIZs tarifffree access to the United States. The next section attempts to bridge the gap between the
thousands of individual products (8-digit HS codes) and larger categories that come close to
corresponding to the target product categories under consideration in this study.
11 An exporter can use a tariff calculator to determine what duties will be applied to the product they wish to
export to a certain country such as the United States. A commercial example is the Duty Calculator
(http://www.dutycalculator.com/compare-plans/nr-ni/).
14
Table 4-1. U.S. Tariff Structure (WTO), 2013 Tariff Lines and Import Values (%)
Frequency
Distribution
Duty-free
0<=5
5<=10
10<=15
15<=25
25<=50
50<=100
>100
NAV
AGRICULTURAL PRODUCTS
Final bound
30.2
44.3
13.1
4.3
3.0
1.6
0.4
0.5
41.3
MFN applied
2013
30.8
45.8
12.4
4.6
3.0
1.5
0.4
0.8
41.4
Imports
2012
41.0
36.2
12.5
7.0
1.7
0.7
0.6
0.2
4.0
NONAGRICULTURAL PRODUCTS
Final bound
47.4
26.8
17.1
4.9
1.9
0.5
0.0
3.2
MFN applied
2013
50.6
24.9
16.3
4.7
1.7
0.4
0.0
3.1
Imports
2012
48.9
40.2
6.2
0.9
3.1
0.7
0.0
0.0
Note: NAV means non ad-valorem.

Source: WTO trade statistics.
5. SELECTED PRODUCT
GROUPS
This section looks at the four product categories and the possible benefit of QIZ status for
potential exporters in each, as well as other factors influencing the likelihood of exporting
successfully to the United States. The sectors specified in the SOW (footwear, leather
accessories, processed foods, and light manufactured products) do not always correspond
neatly to specific tariff code categories used by U.S. Customs. In this report, we selected the
most appropriate categories for gauging likely tariffs for the products in the specified sectors.
To put Egypts experience with the QIZ program in perspective, we also compare the
experience of Jordan and Morocco and their trade preference programs. Jordan has both an
FTA and a QIZ program with the United States, and Morocco has an FTA. For leather
footwear, the Jordanian experience is particularly relevant because the early expectations for
the Jordanian QIZ program were similar to those for Egypt.
LEATHER FOOTWEAR
Egypt
After the establishment of QIZ in Egypt, it was expected that RMG would be the first industry
to take advantage of the arrangement. Egypt was already an established producer and exporter
of RMG with long-established buyers in the United States, with exports subject to the
multifiber quota system that expired in 2005. Moving from the previous quota system to the
QIZs did not require new investment or new marketing arrangements with buyers in the
United States: Egypt had established market share, and the physical boundaries for QIZs
included most of the factories in Egypt making RMG for export.
Early expectations for the QIZ program were that success with RMG exports would lead to
new investment and that exports would increase and diversify into footwear products with
similar production processes and overlap in the market linkages in the United States. These
expectations were not realized in Egypt or Jordan (which had a similar QIZ program), for
reasons that other studies have sought to explain. Most of these studies have concluded that
shoe manufacturing is more specialized and more challenging than RMG and more dependent
on achieving economies of scale. As a result, shoe manufacturing has been concentrated in
East Asia, particularly in Chinathe worlds largest consumer and exporter of shoes. Chinas
enormous domestic market enabled manufacturers to invest in and benefit from larger
factories than most countries had established. In turn, large factories and economies of scale
allowed China to dominate the global market in inexpensive, low-quality shoesflooding
markets of many countries and sending local footwear manufacturers into decline. Chinas
competitiveness increasingly suffers from rising labor costs, but the industry still retains
16
significant cost advantages over manufacturers in other countries. Chinese factories have used
this extended period of market dominance to upgrade manufacturing quality, contract with
high-end global brands, and dominate most aspects of the industry.
Egypt does export some leather shoes. Table 5-1 (see end of the chapter), shows the six
largest categories of Egypts exports of leather footwear products in 2014 arranged according
to 4-digit HS category codes with brief descriptions. Most of Egypts exports fall under HS
6403 Footwear with leather upper. In 2014, Egypt exported more than $10 million of leather
footwear, including $293,000 to the United States. The maximum tariff that U.S. customs
applies to this category of product would be 10 percent, and many items could enter for a
lower duty. For the bulk of Egypts leather footwear exporters, striving for QIZ status would
not be an attractive strategy, considering that complying with Israeli content minimums and
the with QIZ reporting requirements and audits may cost more than the waived tariff benefit
of 10 percent. In addition, countries close to the U.S. market, such as Mexico, also enjoy
tariff-free access to the U.S. market.
Egypt also exports other footwear items, included in Table 5-1 (see at the end of the chapter).
Some products in these categories could be subject to tariffs in the United States in the range
of 26 percent to 48 percent, an amount that in the abstract could be a sufficient incentive for
many firms and even investors. Yet Egypt exports few or no products in these categories to
the United States and less than $2 million to all other non-U.S. markets.
Other information confirms that leather footwear is an industry in decline in Egypt, as it is in
most other countries. More than 75 percent of raw materials, including hides, have to be
imported because hides tanned in Egypt will not pass the sanitary, environmental, and
consumer safety regulations in the U.S. or EU. Egyptian tanneries, most located in Cairo,
employ poor technical methods of chrome tanning that leave high residual levels of
Chromium III and VI (hexavalent chromium) in finished products. The tanneries flush their
dangerous chemical waste directly into the Nile. Few have moved out to the model tannery
area (al-Robaki) built with technical assistance from Italy in the suburbs of Cairo. Egypt also
lacks modern manufacturers or suppliers of other footwear-making materials and equipment
such as quality rubber or plastic (polyurethane) for soles or the molds (lasts) that modern
shoemaking requires. Although businesses report skilled or unskilled labor is not hard to find,
there are few established higher educational, vocational, or practical labs to increase technical
capacity across the industry.
Jordan
Jordan has a QIZ agreement with Israel and the U.S. similar to Egypts QIZ program. In
October 2000, Jordan entered into a free trade agreement (FTA) with the U.S. that was slowly
phased in until fully implemented in 2010.12 A few years after the FTA was signed, a study
was conducted to look at the prospects of the footwear industry in Jordan. Global Footwear
Analysis and Jordan used data from 2000 to 2002 and inspections of Jordanian footwear
factories to conclude that Jordan could take advantage of its FTA with the United States in
12 In 2009, QIZ products still accounted for more than half of Jordanian exports to the United States but the QIZ
share has declined in favor of the FTA. (http://ustr.gov/trade-agreements/free-trade-agreements/jordan-fta).
SELECTED PRODUCT GROUPS
footwear only if it embarked on a five-year development plan with European partners to

upgrade tanneries and footwear factories, set up a special training program, and implement
tariff protection legislation that would keep Chinese-made shoes out of the Jordanian market
for at least five years until the industry could develop. The study estimated that Chinese-made
womens shoes were entering Jordan after paying 100 percent or more in tariff duties were
still being sold at two-thirds the cost of making the same shoe in Jordan.13 And Jordans
experience is not unique. Many countries, including Egypt, have seen their domestic footwear
manufacturers decimated by cheap Chinese imports.
Potential Growth for Egypt QIZ Exports

This experience does not mean there is no footwear product that could take advantage of the
QIZ program, but leather footwear, specifically, does not appear to be a promising product
category for diversification. A more interesting product might be house slippers made of
textile uppers with rubber soles. Egypt would have to import the rubber soles but might have
an advantage using soft Egyptian cotton for the upper parts of the slipper. The U.S. customs
tariff on such slippers is currently 37.5 percent ad valorem. This tariff could be attractive to a
U.S. importer or retailer. A reliable relationship with a U.S. buyer would be needed before
investing in this type of new product. Such a relationship might be possible to cultivate for
textile footwear that matched household linens. An importer or retailer in the United States
currently paying 37.5 percent tariff duty on every pair of imported house slippers might be
interested in examining the option of sourcing production that qualifies for the QIZ tariff
exemption.
LEATHER ACCESSORIES
Egypt
Table 5-3 (see at the end of the chapter) shows Egypts global exports of leather accessories
for its three largest product categories in 2014. In that year Egypt exported less than $3
million in all three categories combined, and 94 percent of those exports came under the HS
code 4205, which covers a wide range of articles of leather or leather composition not
elsewhere specified. Products in this category would be subject to a 4.9 percent tariff by U.S.
customs, but almost none of Egypts exports in this category go to the United States. Most of
these items are made under agreements with European manufacturers in Italy or Spain.
There are two leather accessory products that Egypt exports to the world that are subject to a
tariff rate above 10 percent when exported to the United Statesleather bags or trunks, and
leather apparel and accessories. The same health, consumer safety, and environmental
constraints facing potential diversification into leather goods outlined on page 15, however,
would apply to these products as well. In addition, Egyptian producers lack market linkages
to U.S. buyers to sell or tailor their products to the U.S. marketplace.
13 Source: http://www.scribd.com/doc/86907358/Glbal-Footwear-Analysis-and-Jordan-1#scribd.
18
Morocco
Leather producers in Morocco have strong commercial ties to high-fashion houses in Italy,
Spain, Portugal, and elsewhere in the European Union. They have provided advice, fashion
guidance, and other technical assistance to producers in Morocco, frequently under
production agreements that call for most of the product to be shipped to the European partner.
Morocco signed an FTA with the United States in 2004 that entered into effect in January
2006. In 2014, Moroccos global exports of leather products were $71 million, of which
1 percent went to the U.S. market. An early expectation of the extension of tariff-free trade
access to Morocco was an increase in the leather accessories exported to the U.S.
marketplace. As shown in Table 5-4 (see end of the chapter), the growth in Moroccos leather
accessory exports to the U.S. market underperformed the growth of imports of leather
accessories into the U.S. market from all countries on average. A more rigorous analysis of
competiveness constraints specific to Morocco and possible regression analysis could
determine attributable causes; on its face, however, there seems no clear indication of a
positive impact of tariff-free access on the Moroccan leather industrya lesson for Egypt
under the QIZ program.
LIGHT MANUFACTURINGENGINEERED PRODUCTS

AND ELECTRONICS
Egypt is a significant exporter of light manufacturing products. More than 500 Egyptian firms
are members of the Egyptian Engineered Products Export Council, which represents
producers and exporters making everything from insulated wire and cable to auto parts,
household appliances, flat-screen televisions, lighting fixtures, and air conditioners.
Egypt exported more than $1.8 billion of products in HS chapters 84, 85, and 87 in 2014, with
most of the exports falling into the 11 product code categories shown in Table 5.1 at the end
of this section.
In the same year, Egypts total exports in these categories to the United States were less than
$2.2 million, almost all in insulated wire and cable, which is subject to a U.S. customs duty of
5.3 percent. For most other items in the light manufacturing category, the U.S. duties are even
smalleronly 1.8 percent for refrigerators and freezers, 2.2 percent for air conditioners. Such
low tariff rates mean that Egyptian producers and exporters of these products have little to
gain from pursuing QIZ status. In addition to the added cost of partnering with Israeli partners
to get the minimum required Israeli content in the product, there would be the additional costs
of reporting and compliance. More significant, though, would be the cost of retooling and
reengineering their own production processes to meet the specifications and standards
required in the U.S. market.
Although high-quality Egyptian manufacturers can meet the standards necessary to obtain the
European mark (CE or Conformit Europene) needed to sell products in the EU, few make
products certified by Underwriters Laboratories (UL), needed to sell in the U.S market. Many
firms choose not to invest in UL certification because they do not have connections to U.S.
buyers to justify the investment. In addition, Egypts own electrical system and appliances are
compatible with those in the European Union but not with those in the United States. A
similar problem would face many of Egypts auto parts makers, which are tooled to the metric
system and European-model vehicles rather than U.S. models. The investment required would
be considerable, and the gains from exporting to the United States under the QIZ program
would be marginal at best. The incompatibility of U.S. specifications and Egypts proximity
to the European market are probably the main reasons there are so few exports from Egypt to
the United States in this category.
PROCESSED FOOD PRODUCTS

Processed food products are one area of exports where QIZ status seems to be attractive to
U.S. importer/buyers and eventually customers. In general, fresh food products, which face
high U.S. tariffs and for which duty-free entry would be attractive, are ineligible for QIZ
status because they do not meet requirements for substantial transformation and an Israeli
input minimum. Processed foods also face the burden of proving to U.S. Customs that they
have undergone substantial transformation, and there have been significant disputes over this
issue, including a recent one regarding canned artichokes exports from Egypt to the United
States.
For market and logistic reasons, Egypt will generally find the European Union to be a better
(higher margin, lower transport cost) market for its fresh food products than the United States.
EU markets are only hours away from Alexandria. The United States, however, is an
attractive market for certain processed food products with a high-enough tariff barrier. There
is also the attraction of serving the ethnic food market, which is growing in the United States.
Unlike footwear and leather accessories, retailers and end markets for food products are less
concentrated and easier to access for Egyptian exporters.
The tariff advantage of QIZ status for processed food exporters is more difficult to determine
than for other sectors discussed in this report. Several products are subject to a flat rate rather
than ad valorem duties, and ad valorem rates are typically higher than the rates for light
manufactured products, electronics, or even some footwear.
Table 5-6 also shows that Egypts global exports in this category are in the billions of dollars.
The table stops at the 17th-largest category, which still amounted to more than $44 million in
2014. Only a small share of these exports goes to the United States. The first seven products
listed in Table 5-6 are exported to the Middle East and EU destinations (mostly to Italy) for
consumption and re-export. The lack of exports to the United States is partially due to the
proximity of the EU market, but there is another potential constraint: U.S. phytosanitary
standards and regulations.
U.S. phytosanitary standards for food imports are stringent, and imports from Egypt are often
stopped at the border for pests, pesticide residue, or failure to meet other standards. Egyptian
importers and exporters cannot operate successfully with the risk that entire shipments of
product will be stopped from entering for health or safety reasons. Egyptian exporters may
not be able to control poor agricultural practices such as excessive use of insecticides that
sometimes have prevented Egyptian olive products from passing U.S. FDA inspections. For
example, the closeness of neighboring Egyptian farms and shared irrigation water can lead to
contamination from farmers using poor practices (such as overuse of sprayed insecticides).
Egypt is only starting to engage in the processes of farm-to-fork traceability that will be
required in the future by U.S. and EU importers. Investments to control quality and establish
traceability and demonstrations of substantial transformation of food within the QIZ will be
needed.
20
Yet despite these challenges, some firms have managed to penetrate the U.S. market.
Egyptian firms exported $14 million of frozen vegetables (HS 0710) to the United States in
2014 and almost $10 million worth of fruit and vegetable juices. The U.S. firm H.J. Heinz has
built a multimillion dollar bottling and canning operation in Egypt. Egypts leading
manufacturers of juices have adopted state-of the-art processing and packaging.14 In addition,
informal reports indicate that Israeli partners feel positive about the prospects of partnering
with more processed food enterprises in Egypts
QIZs, possibly supplying canning and packaging
materials for exports.
The ultimate economic impact on
poverty reduction is likely to be much
Finally the potential economic development

greater from success in the processed
impact should be taken into consideration. An
food export category than in the other
Egyptian-grown and -processed food export will
categories examined in this report.
have far greater backward linkages and multiplier
advantages for the Egyptian economy than do
leather shoe exports, for which Egyptian
manufacturers import probably more than 75
percent of needed materials. The ultimate economic impact on poverty reduction is likely to
be much greater from success in the processed food export category than in the other
categories examined in this report.
IMPACT ON U.S. JOBS

Earlier studies have pointed out that imports of RMGs into the United States from Egypt
would not have a measurable impact on U.S. employment because very few RMGs are
produced in the United States today. Increased exports from Egypt would come at the expense
of exports from China or other East Asian sources but would not affect U.S. employment. The
same could be said for leather footwear, another industry that most U.S. producers have
exited. Although it is not easy to make a general statement about light machinery or
foodstuffs without a more detailed look at the specific product and the quantities that would
be expected to enter the U.S. market from Egyptan analysis that would be product specific
and is outside the scope of the current studywe suspect the minimal share of Egyptian
exports in the U.S. import market (0.06%) suggest limited to no impact on U.S. jobs of export
growth in these sectors.
TRANPORT AND LOGISTICS

The statement of work for this assignment included a request to:
Provide market information on products identified as offering the greatest tariff
benefit, including current suppliers, their respective market shares in the U.S.
market, and average CIF prices in the United States. Provide estimates of FOB
prices of these products at a reference port in Egypt and compare these estimates
to equivalent wholesale prices in Egypt in the same reference port.
The purpose of this request is to reveal Egypts competitive position in these products and
inform how easily or difficult it will be to enhance competitiveness. As this reports
14 See www.juhayna.com
methodology combines a desk-study tariff analysis with a rapid one-week qualitative

competitiveness assessment, this report describes the product associated prices of Egypts
competitive position and how further, more quantitative and rigorous study, could reveal the
difficulty to enhancing competitiveness in Egypt.
In this section the authors select a few specified product groups at the 4-digit HS level, and,
using the U.S. International Trade Centers data, cite the Customs value (hereafter used as a
proxy for Free on Board or FOB) and cost, insurance, and freight (CIF) value for U.S. imports
from Egypt. But these values reflect products that by definition Egyptian exporters and U.S.
importers have already judged to be competitive, i.e., sellable in the U.S. marketplace. For
products that are not being imported to the United States from Egypt, additional research
using value chain methodology and incorporating market surveys of Egyptian wholesale
prices should be considered to address specific product competitiveness.
The comparison of wholesale prices to FOB prices in Egypt should be able to reveal domestic
or logistical constraints reducing the competiveness of Egyptian products within domestic
distribution systems. Over the course of several interviews with enterprises in Egypt, no firms
identified the domestic distribution system as a problem for exporting. In fact, several firms
said exporting was relatively simple, cheap, and quick. The inexpensive cost of internal
trucking, availability of export facilitation firms, and familiarity with export requirements
were cited. However, several firms indicated the high cost of importing Israeli inputs limited
the cost competitiveness of their final products. Specifically, the high cost of trucking
products from Israeli factories to ports for export and the high cost of freight from the port of
Haifa to Alexandria were cited (the latter may be due to limited seaborne trade between the
countries). Most firms listed the high cost and difficulty associated with importing raw inputs
into Egypt from any country as an impediment to price competiveness.
The comparison of FOB and CIF prices for selected products exported from Egypt can
indicate if there are constraints in the international freight and insurance services facing
Egyptian exporters. A detailed market survey at the main ports of Egypt could reveal the
exact FOB prices associated with these selected products; however, in lieu of these definitive
prices, the customs value, appraised at import by U.S. Customs, can be used as a proxy. The
difference between Customs value and CIF prices are the cost of freight and insurance.
Interviews with freight forwarders and exporting firms in Egypt revealed that few to no firms
use insurance when exporting overseas. A freight forwarder indicated that vessels maintain
umbrella insurance that covers cargo lost in a sinking or tossed overboard to rebalance ballast.
It is assumed this insurance cost is included within freight costs.
In Tables 5-7 to 5-10 at the end of the section, the customs value and the CIF prices are
compared for the four sectors reviewed for this report. It should be noted that a more detailed
value chain analysis for each product could reveal why freight costs differ, e.g. the difference
between refrigerated, bulk, and specialized shipping. In Table 5-7, most processed food
exports from Egypt appear to have low freight costs as a percentage of assessed customs
value between 4 and 16 percent, with bulk goods the cheapest and juices, jams, jellies, and
marmalades the most expensive. In Table 5-8, footwear with an upper of leather has a low
freight cost of 5 percent of customs value. In Table 5-9, leather accessories have relatively
high freight costs, ranging from 12 to 18 percent, but this could be related to a low trade
volumeless than $30,000 overall. In Table 5-10, the selected light manufacturing products
have the lowest freight costs overall with all at or below 5 percent. Overall, firms interviewed
22
found the cost of freight from Egypt to the United States to be cheaper than for imports from
the United States because of the prevailing trade deficit.
The rapid assessment conducted in the field in May 2015 and the price comparison in the
abovementioned tables show that domestic and international transport and logistics do not
appear to be a significant constraint for Egyptian exporters. A more rigorous quantitative
analysis could reveal a more definitive understanding of Egypts competitiveness in the U.S.
market compared to those of other competitors.
METHODOLOGICAL LIMITATIONS
This report has a narrow methodological focus on the potential for QIZ export diversification
of four predetermined sectors. As an update to a 2012 QIZ report, this report hews closely to
the design and structure of the previous report. When possible, the authors incorporated the
insights on sectoral competitiveness gained from a few brief interviews with key industry
insiders carried out in May 2015. With limited time because the project was ending,
predetermined sectors, a single destination market (United States), and program constraints
(QIZ protocol), this report does not address all exports or the overall potential for Egypts
export diversification, but only the potential of these four sectors to represent a greater share
of Egyptian exports to the United States under the QIZ program. In addition, this report
reflects the current situation in Egypt and does not attempt to address how to diversify exports
or increase the competitiveness of these sectors in the future.
23
Table 5-1. Egypts Exports to the World and the United States, by HS4, 2014 (US$ 000)
Product
code
Exports to the
World
Product Description
6403
Footwear, upper of leather
6402
U.S. Imports
from Egypt
U.S. Imports
from Egypt QIZ
QIZ Imports
as % of All
U.S. Imports
from Egypt
Maximum U.S.
Applied Tariff
$10,593
$375
0%
10%
Footwear nes, outer soles and uppers of rubber

or plastics
$549
N/A
37.50%
6405
Footwear, nes
$401
N/A
12.50%
6406
Part of footwear; removable in-soles, heel

cushion etc.
$344
N/A
26.20%
6404
Footwear, upper of textile mat
$122
N/A
48%
6401
W/p foot, outer sole/upper of rubber/plastic

upper not fixed to sole nor assembled
$76
N/A
37.50%
Note: There are data discrepancies between USITC import data reported as U.S. Imports from Egypt and UN Comtrade Data reported as Exports to the U.S. The authors attempted to use a consistent data source in each table
and the most reliable for the type of comparison being conducted.
Source: Tariff and trade data is from the U.S. Department of Commerce and the U.S. International Trade Commission via usitic.dataweb.gov. Export data to the world comes from COMTRADE Trademap.
Table 5-2. Egypt, Jordan, and Moroccos Exports to the United States, 19962014 (US$ million)
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Egypt
718
820
707
703
925
852
1,341
1,127
1,328
2,076
2,404
2,380
2,344
2,078
2,203
1,926
Jordan
25
26
16
31
73
229
412
673
1,093
1,267
1,421
1,333
1,139
924
974
255
300
352
414
456
453
410
396
545
470
546
626
880
467
686
Morocco
2012
2013
2014
2,991
1,630
1,400
1,060
1,155
1,196
1,354
994
934
999
1,010
While the specific circumstances surrounding the spike in exports in 2012 is unclear, closer inspection of COMTRADE data indicates this spike was mostly caused by, in order of impact, largest to smallest, the following sectors:
fuels, fertilizers, iron and steel, apparel, earths and stone, vehicles, preparations of vegetables and fruits, man-made staple fibers, and miscellaneous edible preparations.
24
Table 5-3. Egypts Top Exports of Leather Accessories, 2014 (US$ 000)
Product
code
Exports to the
World
Product label
4205
Articles of leather or composition leather, nes
4202
Trunks, suit-cases, camera cases, handbags
4203
Articles of apparel & clothing accessories, of

leather or composition leather
U.S. Imports
from Egypt
QIZ Imports as
% of All U.S.
Imports from
Egypt
U.S. Imports
from Egypt QIZ
Maximum U.S.
Applied Tariff
$2,679
$11
0%
4.90%
$173
$ 16
$5
31%
20%
$26
$5
0%
14%
Note: There are data discrepancies between USITC import data reported as U.S. Imports from Egypt and UN Comtrade Data reported as Exports to the U.S. The authors attempted to use a consistent data source in each table and the
most reliable for the type of comparison being conducted.
Table 5-4. Leather Accessory Exports from Morocco, 20062014 (US$ 000)
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
MOROCCOS EXPORTS TO THE UNITED STATES

1,653
% change y/y
1,419
1,307
832
663
1,199
1,553
1,471
766
745
-14%
-8%
-36%
-20%
81%
30%
-5%
-48%
-3%
U.S. IMPORTS FROM WORLD

9,386,395
% change y/y
10,145,022
10,711,610
10,786,934
8,556,312
10,523,582
11,718,948
12,721,088
13,418,604
13,870,467
8%
6%
1%
-21%
23%
11%
9%
5%
3%
MOROCCOS EXPORTS TO WORLD

63,981
% change y/y
63,870
59,462
64,343
59,901
65,015
63,223
67,396
65,980
70,580
0%
-7%
8%
-7%
9%
-3%
7%
-2%
7%
-9
-1
MOROCCOS EXPORT SENSITIVITY BEFORE AND AFTER THE U.S.-MOROCCO FTA

-2
-1
-52
-1
A negative number indicates Morocco underperformed in leather accessory exports to the U.S. compared to other countries, while a positive number indicates Morocco over performed.
25
Table 5-5. Egypts Top Exports in HS Chapters 84, 85, and 87, by HS 4, 2014 (US$ 000)
HS 4
Code
Product label
Exports to
the World
U.S. Imports
from Egypt
U.S. Imports
from Egypt QIZ
QIZ Imports as
% of All U.S.
Imports from
Egypt
Maximum U.S.
Applied Tariff
8544
Insulated wire/cable
1,001,830
1,676
493
29
5.3%
8528
Television receivers (including video monitors &

video projectors)
749,404
286
5.0%
8418
Refrigerator, freezer, etc.
122,613
N/A
1.8%
8516
Electric instantaneous water heater, space heating;

hair dryer
93,568
N/A
5.3%
8537
Board & panels, equipped with two/more switches,

fuses
37,154
2.7%
8415
Air conditioning machines, with motor-driven

elements
35,067
N/A
2.2%
8450
Household or laundry-type washing machines
27,426
N/A
2.6%
8536
Electrical app for switching (examples, fuse,

switches, etc.) not exceeding 1000 volt
25,943
154
2.7%
8504
Electric transformer, static converter (for example

rectifiers)
20,398
6.6%
8708
Parts & access of motor vehicles
16,469
5,318
2.5%
8414
Air, vacuum pumps; hoods incorp. a fan
15,020
69
4.7%
Note: There are data discrepancies between USITC import data reported as U.S. Imports from Egypt and UN Comtrade Data reported as Exports to the U.S. The authors attempted to use a consistent data source in each table and the
most reliable for the type of comparison being conducted.
26
Table 5-6. Egypts Top Processed Food Products, by HS4, 2014 (US$ 000)
No.
Product
code
Product label
Exports to the
World
U.S. Imports
from Egypt
U.S. Imports
from Egypt QIZ
QIZ Imports as
% of All U.S.
Imports from
Egypt
Maximum U.S.
Applied Tariff
0406
Cheese and curd
378,924
2,372
25
0713
Dried vegetables, shelled
286,232
219
1.5 cents/kg
1806
Chocolate and other food preparations

containing cocoa
148,373
132
10 + 52.8 cents/kg
0710
Frozen vegetables
144,671
10,508
4,792
46
2009
Fruit & vegetable juices, unfermented
128,334
7,532
408
2005
Prepared or preserved vegetables nes

(excluding frozen)
99,632
7,763
4,993
64
2106
Food preparations, nes
78,288
1,050
1704
Sugar confectionery (including white choc),

not containing cocoa
75,999
84
13
15
1703
Molasses resulting from the extraction or

refining of sugar
56,513
14
.35cents/kg
10
1905
Bread, biscuits, wafers, cakes and pastries
55,296
396
4.50
11
2004
Prepared or preserved vegetables nes (incl.

frozen)
53,598
569
477
84
11.20
12
1902
Pasta & couscous
53,541
949
102
11
6.40
13
2007
Jams, fruit jellies & marmalades
51,819
2,137
46
14
0811
Frozen fruits & nuts
50,584
1,774
1,749
99
14.50
15
1515
Fixed vegetable fats & oils & their fractions
46,655
46
3.40
16
0711
Vegetables, provisionally preserved (unfit for

immediate consumption)
44,750
20
20
100
17
0712
Dried vegetables
44,422
7,373
670
14.90
7.9 cents/liter
14.90
10 + 70.4 cents/kg
12.20
14
8 +8.6cents/kg
29.80
Note: There are data discrepancies between USITC import data reported as U.S. Imports from Egypt and UN Comtrade Data reported as Exports to the U.S. The authors attempted to use a consistent data source in each table
and the most reliable for the type of comparison being conducted.
27
Table 5-7. Customs and Cost, Insurance, Freight Values for Selected Processed Foods Products at the HS 4 Level, 2014 (US $)
HS 4
Product
Code
Product
Description
All US Imports
from Egypt
Customs Value
(CV)
All US Imports
from Egypt CIF
Value (CIFV)
Calculated
insurance cost
(CIFV-CV)
Insurance and
Freight as % of
Customs Value
Total U.S. Imports

(CV)
Imports from Egypt

as a % of all U.S.
Imports
'0406
Cheese and curd
2,371,856
2,521,648
149,792
6%
1,274,727,560
0.186%
'0710
Frozen vegetables
10,508,495
11,341,901
833,406
8%
833,104,346
1.261%
'2009
Fruit & vegetable

juices, unfermented
7,531,680
8,502,666
970,986
13%
1,890,483,216
0.398%
'2005
Prepared or preserved
veg. nes (excl frozen)
7,763,266
8,428,981
665,715
9%
1,132,647,954
0.685%
'2106
Food preparations, nes
1,050,086
1,090,215
40,129
4%
2,026,126,984
0.052%
'2007
Jams, fruit jellies &

marmalades
2,137,018
2,481,728
344,710
16%
235,062,770
0.909%
'0811
Frozen fruits & nuts
1,773,544
1,845,770
72,226
4%
733,880,443
0.242%
'0712
Dried vegetables
7,372,844
7,887,361
514,517
7%
237,732,403
3.101%
Source: Tariff and trade data is from the U.S. Department of Commerce and the U.S. International Trade Commission via usitic.dataweb.gov.
Table 5-8. Customs and Cost, Insurance, Freight Values for Selected Footwear Products at the HS 4 Level, 2014 (US$)
HS 4 Product
Code
'6403
Product
Description
Footwear, upper of
leather
All US Imports
from Egypt
Customs Value
(CV)
$374,843
All US Imports
from Egypt CIF
Value (CIFV)
$395,109
Calculated
insurance cost
(CIFV-CV)
$20,266
Insurance and
Freight as % of
Customs Value
5%
Total U.S.
Imports (CV)
$12,699,683,714
Imports from
Egypt as a % of
all U.S. Imports
0.003%
28
Table 5-9. Customs and Cost, Insurance, Freight Values for Selected Leather Accessories Products at the HS 4 Level, 2014 (US $)
HS 4
Product
Code
Product Description
All US Imports
from Egypt
Customs Value
(CV)
All US Imports
from Egypt CIF
Value (CIFV)
Calculated
insurance cost
(CIFV-CV)
Insurance and
Freight as % of
Customs Value
Total U.S.
Imports (CV)
Imports from
Egypt as a % of
all U.S. Imports
'4205
Articles of leather or
composition leather, nes
10,662
12,557
1,895
18%
207,213,363
0.005%
'4202
Trunks, suit-cases, camera

cases, handbags etc. of leather,
plastic, textile etc.
15,901
18,263
2,362
15%
10,894,006,593
0.0001%
'4203
Articles of apparel & clothing

accessories, of leather or
composition leather
5,437
6,067
630
12%
1,688,799,784
0.000%
Table 5-10. Customs and Cost, Insurance, Freight Values for Selected Light Manufacturing Products at the HS 4 Level, 2014 (US $)
HS 4
Product
Code
Product Description
'8544
Insulated wire/cable
'8528
All US Imports
from Egypt
Customs Value
(CV)
All US Imports
from Egypt CIF
Value (CIFV)
Calculated
insurance cost
(CIFV-CV)
Insurance and
Freight as % of
Customs Value
Total U.S.
Imports (CV)
Imports from
Egypt as a % of
all U.S. Imports
1,122,187
1,175,192
53,005
5%
18,393,410,535
0.006%
Television receivers (including

video monitors & video
projectors)
286,383
294,321
7,938
3%
26,885,146,527
0.001%
'8536
Electrical app for switching (ex:

fuse, switches, etc.) not
exceeding 1000 volt
160,044
168,580
8,536
5%
9,746,339,585
0.002%
'8708
Parts & accessories of motor

vehicles
5,317,859
5,441,531
123,672
2%
57,939,803,531
0.009%
6. CONCLUSIONS
Of the four categories of exports considered in this study, the most promising candidate for
benefitting from QIZ status is Processed Foods. Although obstacles are considerable, some
firms have already managed to market millions of dollars of processed foods to the United
States. Egyptian growers and food processors are already looking to U.S. markets for any
product they cannot sell fresh locally or to EU markets at better margins. QIZ benefits would
be an incentive to make the investments needed to comply with USDA and FDA standards
and customs requirements for substantial transformation.
The fact that processed foods have been growing in absolute terms and as a share of all QIZ
exports suggests that this is a product category with some intrinsic attraction to entrepreneurs
and investors in Egypt and Israel as well as to importers/buyers/distributors in the United
States. While the other categories seem attractive it should be instructive that even after ten
years of existence or operation, no investors or entrepreneurs have judged it worthwhile to
export footwear, leather accessories or electrical appliances through QIZ. This includes
international operators, who, it is known, keep analysts and advisors who track U.S. trade
agreement requirements and benefits and advise on sourcing and investment decisions based
on overall supply chain considerations, not just tariff benefits.
Finally, every success in the case of a food product grown in Egypt will have greater
economic impact on poverty reduction in Egypt than exports of products for which Egypt
would have to import a substantial portion of the inputs.
When examined closely there are a number of logical reasons why exports from Egypts
QIZs have been dominated by clothing and textile articles. First, Egypt was already
producing and exporting RMGs to the U.S. Investment in production and access to market
was already in place and functioning under the quota system that pre-dated the QIZ and the
established reliable market access supported additional investment. Second, U.S. import
practices are generally liberal and tariffs low except in a few categories that include clothing,
footwear, dairy and foodstuffs. The tariff advantage of the QIZ therefore tends not to support
a broad diversity of exports.
For future research on this topic, we recommend a closer look at the experience of Jordan and
Morocco and at what industries and exports have grown to date based on the specific
competitiveness constraints and tariff schedule applicable over time. Additional research
using regression at the 2 and 4 digit HS code could explain how QIZ and FTA
implementation in Egypt, Jordan, and Morocco impacted export growth over time.
Specific studies for specific products can be done, but these will be more useful if they can be
done with provisions to consult with U.S. buyers regarding their interest in considering
sourcing from Egypt for a product that has QIZ advantages.
BIBLIOGRAPHY
Trade Competitiveness of the Middle East and North Africa, Policies for Export
Diversification. 2010. Directions in Development/Trade series. Edited by Jos R. LpezClix, Peter Walkenhorst, and Ndiam Diop. World Bank: Washington, D.C.
Impact of Proposed Expansion of Qualifying Industrial Zones in EgyptA Preliminary
Assessment. 2012. USAID Trade Facilitation Project. July.
Gino Marello, Jane ODell and Lynn Salinger. 2009. Improving Productivity in Egypts
Ready-Made Garments Sector. USAID-TAPR II. May.
Apparel Exports to the United States: Comparison of Morocco, Jordan, and Egypt, October
2008. Nathan Associates Inc. for USAID/Morocco.
Peterson Institute for International Economics. Egypt after the Multi-Fiber Arrangement:
Global Apparel and Textile Supply Chains as a Route for Industrial Upgrading. 2005.
Working Paper Series. August. http://www.iie.com/publications/wp/wp05-8.pdf
http://www.qizegypt.gov.eg/
http://footwearsinfolinethree.tripod.com/glbal_footwear_analysis_and_jordan.pdf
http://www.transparencymarketresearch.com/footwear-market.html
http://www.slideshare.net/Euromonitor/global-footwear-market-trends-developments-andprospects
http://www.ibisworld.com/industry/global/global-footwear-manufacturing.html
http://www.businessinsider.com/30000-workers-striking-at-chinas-biggest-shoe-factory2014-4
http://world.bata.com/news/2013/batas-most-modern-factory
http://product-industries-research.hktdc.com/business-news/article/Leather-GoodsFootwear/General-Requirements-for-Exporting-Footwear-Products-toEgypt/psls/en/1/1X000000/1X07XGQY.htm
http://www.imcegypt.org/ar/studies/FullReport/Footware%20&%20Leather%20Sector%20Development%20
Strategy_Part%204_EN.pdf
http://www.yueyuen.com/index.php/en/marketdata
APPENDIX A. BACKGROUND ON
THE U.S. QIZ PROGRAM AND
EGYPT QIZS
Qualifying Industrial Zones (QIZ) is a U.S. trade preference program established by the U.S.
Congress through legislation in 1998. It represents an important element in U.S. efforts to
increase trade with Egypt by improving the competitiveness of Egyptian products through
duty free privileges accorded to goods that contain a specified level of Israeli content and
meet other conditions. Egypt and Israel signed an agreement in 2004 to undertake QIZs. The
U.S. government designated the first QIZs in Egypt in 2004 and Egyptian firms began
exporting QIZ qualifying products in2005. The conditions for QIZ eligibility comprise three
key requirements:
Manufacture in an eligible factory located in a QIZ,

A minimum of 35 percent of the value must originate in Egypt
The article must incorporate at least 10.5 percent by value of Israel input15
The QIZ protocol was not intended to benefit any particular industry. However, at the time of
its implementation in Egypt the Multi-Fiber Arrangement quota system was ending along
with its attendant distortion of international production across probable and improbable
locations around the globe. Global textile and apparel trade and production began in 2005 to
more fully reflect market driven cost factors with the expiration of the Agreement on Textiles
and Clothing (ATC). These changes led to the U.S. market becoming more open and
competitive. Implementation of the QIZ program by Egypt in 2005 was therefore an
important factor in helping Egypts RMG sector maintain and build its exports to the
increasingly competitive U.S. market.
Several factors contributed to QIZs benefiting the Egypt RMG sector. The U.S. duty rates on
wearing apparel are higher than those on virtually any other product category. Moreover,
Egypt had an established RMG industry with existing relationships with U.S. buyers, as well
as textiles to supply Egyptian garment makers. The inputs needed to produce apparel included
a variety of items that could be sourced in Israel such as textiles, chemicals, and packing
materials. China, the largest global producer and super competitor in the garment industry,
remained under a system of quantitative restraints until 2008, a constraint that afforded Egypt
15 Definitions of terms such as originating and the process for valuation are those of customs authorities,
which may occasionally vary from common understanding, but are not so arcane that a company with sound
accounting practices and good general understanding cannot verify the eligibility of its products.
A-2
APPENDIX A
an opportunity to solidify and expand its share of the U.S. market in large measure through
the QIZ program.
Between 2005 and 2008, QIZ exports (mostly apparel) more than tripled from $266 million to
$874 million. After 2008 QIZ exports grew more slowly, to approximately US$1 billion in
2011.
APPENDIX B. SCOPE OF WORK

Statement of Work
TFP-150513-01
CONTRACT NO. AID-263-C-11-00003
Updated Report on QIZ Program Diversification into new Export Sectors
Positions:
Trade Analysts
SOW Task:
Updated Report on QIZ Program Diversification
Dates:
On or about April 20 to July 31, 2015.
Staff & LOE:
Mr. John Varley, 7 days LOE

Ms. Jeannette Paulino, 10 days LOE
Ms. Leanne Sedowski, 8 days LOE
Mr. Stewart Pierce-Gardner, 13 days LOE
BACKGROUNDGENERAL
The USAID-funded Egypt Trade Facilitation Project (TFP) [AID -263-C-11-0003]
contributes to USAID/Egypts assistance objective, working to improve conditions for trade
and investment, and support the overall USG strategic economic partnership with Egypt
signed in May 2009. The ultimate objective of this four-year project is to promote economic
growth and job creation, reducing poverty through improvements in the trade environment.
More specifically, Egypt TFP focuses on reducing barriers to trade and the creation of a more
efficient internal and external trading system that streamlines the flow of goods at the border
and leads to improved administration and growth in Egypts trade of goods and services
within its border. The results of this project are categorized in two groups: Results 1: reform
measures that take place at the border and Result 2: those reforms that occur behind the
border.
Enabling Egypt to export more competitively is part of the overall objective the Trade
Facilitation Project (TFP). There is no Free Trade Agreement between Egypt and the United
States. Qualified Industrial Zones (QIZs) are part of the overall strategy to assist economic
development in Egypt by helping to improve Egypts competitiveness in trade with the U.S.
Because it utilizes certain provisions of the U.S.-Israel Free Trade Agreement (FTA), the QIZ
protocol is actually a tri-nation agreement. With the signing of the Egypt-Israel QIZ Protocol,
in December 2004, the United States agreed to grant duty-and quota-free market access to
imports manufactured by companies located within designated areas or Qualified
Industrial Zones (QIZs) in Egypt, provided that those products comply with the protocolstipulated rules of origin. Specifically, Article II/D/1.a of the Egypt-Israel QIZ protocol,
which addresses the rules of origin, requires that 35 percent of a products value must be
added through manufacturing in Egypt, in accordance with U.S. requirements for QIZs, and at
least 10.5 percent of the value must originate in Israel.
B-2
APPENDIX B
Because it came into existence just as the quota system governed by the Multi-Fiber
Agreement expired (December 2004), the QIZ Protocol provided timely opportunities to
companies in Egypts RMG and textiles sector. Exports in these two categories rose quickly
to more than $1 billion by 2010, firmly establishing the program as a policy success.
However, few industries outside the RMG/textile sector have managed to take similar
advantage of QIZ opportunities. RMG and textiles account for well over 90 percent of all QIZ
exports While total QIZ exports rebounded in 2014 from their drop in 2013 by about 2
percent, the share of exports other than RMG/textile products dropped by over 11 percent
from 2013 to 2014.
Lack of diversification limits the potential growth of the QIZ program. Expanding the
program could result in increased job creation, closer trade ties between Egypt and the United
States, and increased commercial ties between Egypt and Israel.
The QIZs main benefit to exporters is its exemption from quotas and tariffs, and because the
U.S. tariff structure for most products is zero or very low, such products would not benefit
from QIZ status. There are products, however, where U.S. tariffs remain significant and for
these, the exemption conferred by QIZ status could be significant, if the products can be
produced competitively within the designated zones in Egypt. Identifying such product
category export opportunities could help increase Egyptian exports to the United States and
support Egyptian goals for increased employment.
OBJECTIVE
The objective of this assignment is to update the sections of the report TFP produced in
February 2013, QIZ Study: Findings, Conclusions and Recommendations, that discussed
initial prospects for diversification by the QIZ Program into new export sectors. TFP has been
requested to produce an update to these sections by USAID/Egypt, at the suggestion of
members of the Economic Working Group at the U.S. Embassy/Cairo.
The purpose of producing an updated report is to update the data related to the three
additional product sectors identified in the previous report that might benefit from the QIZ
program. The 2013 TFP study identified three sectors worthy of additional study: footwear,
leather accessories and processed foods. This report will examine the prospects for these
sectors in greater detail and examine general prospects for selected products in an additional
sectorlight manufacturing.
DESCRIPTION OF ACTIVITY
This activity will analyze prospects for diversification by the QIZ Program into four export
sectors. It will update and build on the analysis of diversification prospects provided in TFPs
QIZ Study: Findings, Conclusions and Recommendations, produced in February 2013.
The methodology will utilize measures of export potential such as Egypts share of world
markets, share of product and market in total exports, trade intensity and export
diversification indices, revealed comparative advantage, and others, to measure the kinds of
products and new markets in which Egypt has trade potential. It will also provide examples of
products in the four potential export sectors indicated below that are eligible for the greatest
tariff advantages under the QIZ Program.
SCOPE OF WORK
Assessing export competitiveness prospects will include the following tasks:
1. Assess the Processed Foods SectorAnalyze prospects to diversify beyond traditional

products such as processed olives, olive oil, and other products that target ethnic markets;
assess new products ability to comply with specific locational requirements for QIZ
eligibility, and related traceability requirements, and other competitiveness factors.
2. Assess the Footwear SectorAssess competitiveness prospects and sector constraints,
e.g., limited entrepreneurial experience, current focus on traditional management
techniques among manufacturers, and related competitiveness factors.
3. Assess Leather AccessoriesAssess competitiveness prospects, e.g., limited cost
competitiveness, high transport costs, lack of proximity to major raw material suppliers,
environmental/water constraints and other key competitiveness factors.
4. Assess Light ManufacturingAssess general competitiveness prospects and sector
constraints for selected light manufacturing products.
5. Update product categories offering the greatest tariff benefit to Egypt that have
relatively high U.S. tariffs within the above four sectors. Identify the top products in each
sector by HTS chapter subject to the highest tariffs but eligible for the QIZ program.
6. Provide market information on products identified in item 5 as offering the greatest tariff
benefit, including current suppliers, their respective market shares in the U.S. market, and
average CIF prices in the United States. Provide estimates of FOB prices of these
products at a reference port in Egypt and compare these estimates to equivalent wholesale
prices in Egypt in the same reference port.
7. Use appropriate measures of export potential and other analytical methodologies,
including summary reviews and comparisons of export product categories that have
increased under similar QIZ and FTA preferential tariff programs in regional comparator
countries such as Jordan and Morocco in recent years.
DELIVERABLES
The consultants will report to TFP Chief of Party Lindsey Wellons, who will approve all
deliverables.
1. A report updating prospects for QIZ Program diversification into new export sectors,
including chapters or sections on each of the tasks above, with annexes on the most recent
export statistics related to the QIZ Program.
2. Presentations, if necessary, summarizing the report to USAID/Egypt and or to economic
officials at U.S. Embassy Cairo.
3. Related items as necessary.
TIMEFRAME AND PROPOSED LOE

The timeframe for this assignment will be from on or about April 20 to July 31, 2015. It is
proposed that consultant Stewart Pierce-Gardner travel from Washington to Cairo, o/a May
16 to o/a May 22, for about 7 days LOE including travel time, to collect data and conduct
interviews.
Total estimated LOE will be, for:
John Varley, 7 person-days LOE (no travel). Tasks and LOE:
B-3
B-4
APPENDIX B
Conduct literature review and background research (2 days)

Select most appropriate methodologies for measuring export potential for each sector
and analyze similar QIZ and FTA preferential tariff programs in regional comparator
countries (3 days);
Review final report and annexes. (2 days)
Jeannette Paulino, 10 person-days LOE (no travel). Tasks and LOE:

Contribute to analysis of export potential focusing on food products (3 days)
Conduct HS code research to identify the top products in each sector by chapter that
incur the highest tariffs but are eligible for U.S. preferential tariff exemption under
QIZ (4 days)
Draft narrative for the above sections and review final report and annexes (3 days).
Leanne Sedowski, 8 person days LOE, including 2 preparation days and 3 days drafting
report sections. Tasks and LOE:
Preparation before travelreview background, set appointments (2 days)
Draft report sections (6 days)
Stewart Pierce-Gardner, 13 person days LOE, including 3 days for RT travel WashingtonCairo, 5 days work in Cairo, and 5 days for drafting, finalizing report, and presenting
final report if necessary (during close-out in late July).
Meetings / data collection in Cairo (5 days)
Draft report sections, supervise & finalize other consultant contributions, present
draft report if necessary (5 days)
Travel RT (3 days)
ACTIVITY CONSULTANTS
The international consultants/advisors recommended for this assignment include:
Mr. John Varley, a senior trade specialist and long-term Nathan Associates employee who
served previously as Chief of Party of TFP from June 2011 to June 2014, and contributed to
and oversaw the previous TFP QIZ Reports done in 2012 and 2013.
Ms. Jeannette Paulino, research associate, who has been project manager of Egypt TFP for
over three years. She has previously worked on QIZ-related research by collecting and
analyzing trade data for the potential expansion of the QIZ program in Upper Egypt and the
potential effect on the United States garment industry. She has also prepared statistical tables
on Egyptian exports to the United States and Egyptian imported-products recalled by the
United States for the Egyptian Organization for Standardization and Quality (EOS).
Ms. Leanne Sedowski, Managing Associate, Trade Policy, International Development
Economics at Nathan Associates, who contributed to the TFP QIZ Reports in 2012 and 2013.
Mr. Stewart Pierce-Gardner, Associate, Trade Facilitation, International Development
Economics at Nathan Associates, who has been project manager of Egypt TFP for over 3
years.
SCOPE OF WORK
COUNTERPARTS
This report will be prepared for USAID/Egypt. No counterpart from the QIZ Unit is
designated.
OTHER TFP RESOURCES

TFP personnel including management and export consultants will be available to assist the
consultants on this task.
B-5
APPENDIX C. TRADE DATA

ANALYSIS
As part of this assessment and report TFP undertook trade analysis in May and June 2015 to
identify sectors other than RMG offering the potential to diversify and increase QIZ
exports.16 All data are from www.trademap.org of the International Trade Centre and are
based on UN COMTRADE statistics. Data was analyzed down to the Harmonized System
(HS) 6-digit level.
Selection of the products listed below was guided by the following criteria:
The only products included are those with U.S. tariff lines of 10 percent or higher, a rate
range consistently identified by QIZ firms as necessary to make QIZ exports price
competitive.
QIZ exports were excluded, as these products have already been identified as areas of
potential.
Apart from leather goods and footwear, the focus was on Egyptian products with exports
values greater than $1 million as this amount suggests that a sector is of sufficient scale
and competitiveness to enable expansion into the U.S. market is possible.
Overall, the data show that Egypt exports significant amounts of high-tariff processed or
semi-processed agricultural products to the world. Specifically, Egyptian firms have
succeeded in exporting significant amounts of agricultural and food products to the European
Union, which has strict sanitary and phytosanitary requirements. Exports of leather and
footwear products were also analyzed. However, out of the 26 footwear and leather tariff lines
with a tariff of 10 percent or above, Egypt does not export footwear products in amounts
greater than $1 million.
Egypt exports 96 products (at the HS6 level) in excess of $1 million to the world that have a
U.S. tariff greater than 10 percent but are not currently exported to the U.S. under the QIZ
program. The top 25 products in Table C-1 represent 84 percent of these exports. Of these 25,
agricultural exports make up 47 percent of the top 25, while fiber products (yarns, fabrics,
napkins) are the next largest grouping (16 percent).
16 This research built upon trade data analysis conducted for the July 2012 USAID-funded report prepared by
Nathan Associates, Impact of Proposed Expansion of Qualifying Industrial Zones in Egypt.
C-2
APPENDIX C
Table C-1. Egypts Top 25 Exports to the World of Greater than $1 million with a U.S. Tariff of
10% or Higher, 2014
HS
Subheading
HS Subheading description
Value in
2014 US$
thousand
040630
Cheese processed, not grated or powdered
236,894
961900
Sanitary towels (pads) and tampons, napkins and napkin liners for babies, & similar
article
164,345
690810
Tiles, cubes and sim <7 cm rect or not etc, glazed ceramics
149,469
040610
Cheese, fresh (including whey cheese) unfermented, and curd
102,749
701391
Glassware nes of lead crystal (other than that of 70.10 or 70.18)
83,426
210690
Food preparations nes
72,476
690710
Tiles, cubes and sim <7 cm rect or not etc, unglazed ceramics
67,196
150710
Soya-bean oil crude, whether or not degummed
48,240
080410
Dates, fresh or dried
47,319
200799
Jams, fruit jellies ,fruit/nut pure & paste, ckd prep, sugared, sweetend/not
42,208
170490
Sugar confectionery nes (including white chocolate), not containing cocoa
40,764
150790
Soya-bean oil and its fractions, refined but not chemically modified
39,719
210320
Tomato ketchup and other tomato sauces
32,094
040690
Cheese nes
31,857
701310
Glassware of a kind used for table kitchen, etc. of glass-ceramics
30,480
120242
Groundnuts, shelled, whether or not broken (excl. seed for sowing, roasted or
otherwise co
27,492
520819
Woven fabrics of cotton,>/=85%, not more than 200 g/m2,unbleached, nes
27,218
540710
Woven fab of high tenacity fi yarns of nylon other polyamides/polyesters
17,788
200899
Fruits & oth edible pts of plants nes, prep/presvd, sug, sweet/spir/not
16,052
550810
Sewing thread of synthetic staple fibres
14,225
701337
Drinking glasses (excl. glasses of glass ceramics or of lead crystal a
13,425
520859
Woven fabrics of cotton,>/=85%, not more than 200 g/m2,printed, nes
12,549
630499
Furnishing articles nes, of other textile materials, not knittd or crochetd
10,557
080711
Watermelons, fresh
10,237
630800
Sets consisting of woven fab & yarn, for making up into rugs, tapestries etc.
9,809
Agricultural products were also identified as a potential area of expansion for QIZ firms and
further research was done. Table C-2 illustrates all the processed or semi-processed
agricultural products with tariffs at 10 percent or above that are exported from Egypt to the
world in excess of $1 million. None of these product lines is exported from Egypt to the
United States under the QIZ regime in significant quantities.
TRADE DATA ANALYSIS
C-3
Table C-2. Egypts Agricultural and Food Product Exports to the World in 2014 Greater than
$1 million and with a U.S. Tariff of 10% or Greater
HS
Subheading
Value in
2014 (US$
thousand)
040630
Cheese processed, not grated or powdered
236,894
040610
Cheese, fresh (including whey cheese) unfermented, and curd
102,749
150710
Soya-bean oil crude, whether or not degummed
48,240
080410
Dates, fresh or dried
47,319
170490
Sugar confectionery nes (including white chocolate),not containing cocoa
40,764
150790
Soya-bean oil and its fractions, refined but not chemically modified
39,719
040690
Cheese nes
31,857
120242
Groundnuts, shelled, whether or not broken (excl. seed for sowing, roasted or
otherwise co
27,492
080711
Watermelons, fresh
10,237
071010
Potatoes, frozen
9,795
040229
Milk and cream powder sweetened exceeding 1.5% fat
8,544
200290
Tomatoes nes, prepared or preserved other than by vinegar or acetic acid
8,079
040620
Cheese, grated or powdered, of all kinds
7,377
040590
Fats and oils derived from milk nes
2,935
080719
Melons, fresh, other than watermelons
2,831
151790
Edible mx/prep of animal/veg fats & oils/of fractions ex hd No 15.16
2,661
100630
Rice, semi-milled or wholly milled, whether or not polished or glazed
2,410
190420
Prepared foods of unroasted cereal flakes, mixtures
2,125
190490
Cereals, exc maize (corn),in grain form, pre-cookd or otherwise prepard
1,848
070610
Carrots and turnips, fresh or chilled
1,839
190110
Prep of cereals, flour, starch/milk f infant use, put up f retail sale
1,749
081350
Mixtures of edible nuts or dried fruits of this chapter
1,299
190190
Malt extract & food prep of Ch 19 <50% cocoa&hd 0401 to 0404 < 10% cocoa
1,248
200110
Cucumbers and gherkins, prepared or preserved by vinegar or acetic acid
1,182
070420
Brussels sprouts, fresh or chilled
1,136
As mentioned in the main body of the report, leather and footwear products are areas of
potential expansion for QIZ firms as Egypt has a potential comparative advantage in these
sectors. Table C-3 lists the HS6-level product lines of general leather goods and footwear
products with tariffs of 10 percent or more that are exported from Egypt to the world. None of
these product lines is exported from Egypt to the United States under the QIZ regime.
C-4
APPENDIX C
Table C-3. Egypts Leather and Footwear Exports to the World in 2014, with Tariff Lines of 10%
or Higher not Exported under QIZ to the U.S. Market
HS
Subheading
Leather
Goods
Footwear
Products
Value in
2014 (US$
thousand)
420212
Trunks, suit-cases & sim container w/outer surface of plastics/textiles
57
420219
Trunks, suit-cases and similar containers, nes
15
420222
Handbags w outer surface of sheeting of plastics o of textile materials
420299
Containers, nes
420329
Gloves mittens & mitts, o/t for sport ,of leather or of composition leather
420229
Handbags, of vulcanised fibre or of paperboard
420232
Articles carried in pocket/handbag, w/outer surface sheetg of plas/tex
420239
Articles carried in pocket or handbag, nes
640590
Footwear, nes
387
640299
Footwear, outer soles/uppers of rubber or plastics, nes
229
640291
Footwear, outer soles/uppers of rubber or plastics, coverg the ankle, nes
212
640359
Footwear, outer soles and uppers of leather, nes
186
640690
Parts of footwear; removable in-soles, heel cushions and similar articles;

gaiters, legging
109
640610
Uppers and parts thereof, other than stiffeners
108
640419
Footwear o/t sports, w outer soles of rubber/plastics & uppers of tex mat
100
640199
Waterproof footwear, outer soles/uppers of rubber or plastics, nes
68
640351
Footwear, outer soles and uppers of leather, covering the ankle, nes
57
640420
Footwear with outer soles of leather and uppers of textile materials
22
640219
Sports footwear, outer soles and uppers of rubber or plastics, nes
21
640520
Footwear with uppers of textile materials, nes
11
640192
Waterproof footwear, outr sole/upper of rbr/plas, covg ankle nt knee nes
640319
Sports footwear, o/t ski, outr sole of rbr/plas/leather & upper of leather
640510
Footwear with uppers of leather or composition leather, nes
640411
Sports footwear w outer soles of rubber o plastics& uppers of tex mat
For the final the analysis, Egypts exports in 2014 to the European Union were examined. As
with other analyses, the focus was on products with a U.S. tariff line of 10 percent or above,
and all exports above $1 million. Of particular interest are the agricultural products, because
the European Unions agricultural export requirements are much stricter than those of the
United States. An agricultural product exported to the European Union could potentially meet
U.S. sanitary or phytosanitary requirements, although further research is required to
determine the size of the market in the United States.
TRADE DATA ANALYSIS
C-5
Table C-4. Egypts Exports to the European Union in 2014, greater than $1 million and with a
U.S. tariff of 10 percent or higher
HS
Subheading
Value in
2014 (US$
thousand)
520819
Woven fabrics of cotton,>/=85%, not more than 200 g/m2,unbleached, nes
25,656
200899
Fruits & other edible pts of plants nes, prep/presvd, sug, sweet/spir/not
11,341
520859
Woven fabrics of cotton,>/=85%, not more than 200 g/m2,printed, nes
10,603
630499
Furnishing articles nes, of other textile materials ,not knittd or crochetd
7,460
520811
Plain weave cotton fabric,>/=85%, not more than 100 g/m2, unbleached
6,368
630800
Sets consisting of woven fab & yarn, for making up into rugs ,tapestries etc.
6,113
701391
Glassware nes of lead crystal (other than that of 70.10 or 70.18)
5,221
610331
Mens/boys jackets and blazers, of wool or fine animal hair, knitted
4,921
620291
Womens/girls anoraks & similar article of wool/fine animal hair, not knit
4,464
691110
Tableware and kitchenware of porcelain or china
4,418
210320
Tomato ketchup and other tomato sauces
3,796
540831
Woven fabrics of artificial filaments, unbleached or bleached, nes
3,600
630319
Curtains, drapes, interior blinds & curtain/bd valances, oth tex mat, knit
2,990
200510
Homogenizd vegetables prep/presvd , o/t by vinegar/acetic acid, not frozen
2,963
200290
Tomatoes nes, prepared or preserved oth than by vinegar or acetic acid
2,811
200880
Strawberries nes,o/w prep/presvd, whether/not sugard, sweet/spiritd
2,560
210690
Food preparations nes
2,167
701328
Drinking glasses, stemware (excl. of glass ceramics or of lead crystal
1,995
690810
Tiles, cubes and sim <7 cm rect or not etc, glazed ceramics
1,825
551519
Woven fabrics of polyester staple fibres, nes
1,686
611599
Hosiery nes, of other textile materials, knitted
1,525
520822
Plain weave cotton fabric,>/=85%, >100 g/m2 to 200 g/m2, bleached
1,511
511119
Woven fabrics of carded wool/fine animal hair,>/=85% by wght,>300 g/m2
1,393
701337
Drinking glasses (excl. glasses of glass ceramics or of lead crystal a
1,377
620590
Mens/boys shirts, of other textile materials, not knitted
1,347
441510
Cases, boxes, crates, drums & similar packings; cable-drums, wooden
1,338
ANNEX D. TEXT OF QIZ

PROTOCOL
PROTOCOL BETWEEN THE GOVERNMENT OF THE ARAB REPUBLIC OF
EGYPTAND THE GOVERNMENT OF THE STATE OF ISRAEL
ON QUALIFYING INDUSTRIAL ZONES
The Government of the Arab Republic of Egypt and the Government of the State of Israel
(hereinafter the Parties) noting the 25th Anniversary of the signing of the Peace Agreement
between the Parties and desiring to promote economic and trade relations for the benefit of
the Parties have agreed to conclude this protocol.
In recognition of the requirements in Section 9 of the United States-Israel Free Trade Area
Implementation Act of 1985, as amended, and Proclamation No. 6955 of the President of the
United States of America, hereinafter the legislation and proclamation and on the
recommendation of the private sector of the Parties have agreed to the creation of the
Qualifying Industrial Zones (hereinafter the QIZ), and request the Government of the
United States to designate them as Qualifying Industrial Zones under the legislation and
proclamation.
ARTICLE I
GEOGRAPHIC BOUNDARIES
The Parties hereby designate the following territories of their respective countries as enclaves
where merchandise may enter for purposes of export, without payment of duty or excise
taxes, no matter what the country of origin of the merchandise.
A. For the Government of Egypt: areas as designated by the Parties and as approved by the
United States Trade Representative (USTR) and as specified in Annex A to this protocol.
B. For the Government of Israel: An Area under Israeli Customs control within the
boundaries of the land crossing border at Nitzana Crossing Point.
On the basis of the respective national legislation of the Parties, the competent authorities of
Israel and Egypt shall establish the necessary procedures for the purpose of assuring the
speedy flow of goods into and out of these areas. The purpose of these procedures is to ensure
the strict enforcement of the principles of duty and taxation pursuant to this protocol.
In the case of the State of Israel, where factories located outside the zone shall contribute part
of the 35 percent minimum content required by the legislation and proclamation, the Israeli
D-2
APPENDIX D
customs authority shall ensure that inputs imported from abroad incorporated into goods
shipped into the zone shall be exempt from duty.
ARTICLE II
QIZ JOINT COMMITTEE
A. The Parties hereby agree to the establishment of a QIZ Joint Committee which shall have
the responsibilities, outlined in Annex B, of identifying those manufacturers located within
the Qualifying Industrial Zones, which involve substantial economic cooperation between
Israel and Egypt. Goods processed in these zones by manufacturers whose names appear on a
list (hereinafter the list) approved by the QIZ Joint Committee shall be eligible for duty-free
entry into the United States if the goods meet the requirements of this Protocol and its
Annexes as well as of the legislation and proclamation.
B. The QIZ Joint Committee shall meet in Jerusalem and in Cairo, alternately, every three
months or upon request by either Party whichever comes earlier. During every fourth quarter
the QIZ Joint Committee shall hold a business cooperation event in which business people
and other persons of both Parties who have interest in the QIZ shall have the opportunity to
participate. This event shall be held in Egypt and Israel alternately.
C. A representative of the United States shall have the right to participate in meetings of the
QIZ Joint Committee as an observer.
D. The QIZ Joint Committee may determine that a business qualifies for QIZ treatment if:
1.a. The company of the Egyptian side of the QIZ and the company of the Israeli side each
contribute and maintain at least one third (10.5 percent) of the minimum 35 percent of local
content required under the legislation and the proclamation for duty-free treatment in the
United States and according to the procedures as detailed in Annex B to this Protocol; or
1.b. The manufacturer on the Egyptian side of the QIZ and the manufacturer on the Israeli
side each contributes and maintains at least 20 percent of the total cost of production of goods
eligible for duty-free treatment, excluding profits, even if the costs cannot be considered as
part of the 35 percent minimum content requirement. For this purpose, costs may include
originating materials, wages and salaries, design, research and development, depreciation of
capital investment, overhead including marketing expenses, etc.
2. Only Israeli companies operating in areas under Israels customs control shall be
recognized for the purposes of applying the Israeli contribution as mentioned in subsections
1.a. and 1.b. above.
E. The QIZ Joint Committee shall issue a certificate, valid for a period of one year,
recognizing that a company is located within the QIZ.
1.Only companies located in areas specified in Article I may be eligible to request such a
certificate.
2. This certificate will be valid for the purpose of eligibility for duty free treatment under the
provisions of this Protocol, only when the companys name appears on the list, described in
Paragraph F below.
TEXT OF QIZ PROTOCOL
D-3
3.The QIZ Joint Committee shall have the authority to cancel this certificate only if the
requirements of this Protocol and its Annexes are not met.
F. The QIZ Joint Committee shall promptly provide quarterly the U.S. Customs Authority
(Trade Compliance Office, Office of Field Operations) and the Egyptian Customs Authority
with a list of Companies entitled to duty free treatment for the next quarter only, according to
the provisions of this Protocol.
Only companies which have fulfilled all the requirements of this Protocol and its Annexes for
the previous quarter shall be eligible to be included in the list for the next quarter.
ARTICLE III
RULES OF ORIGIN
The Parties agree that the origin of any textile or apparel product that is processed in the
Qualifying Industrial Zones, regardless of the origin of place or processing of any of its inputs
or materials prior to entry into, or subsequent to withdrawal from, these zones, shall be
determined solely pursuant to the rules of origin for textile and apparel products set out in
Section 334 of Uruguay Round Agreement Act, 19 U.S.C. 3592.
ARTICLE IV
CUSTOMS VERIFICATION
The Parties shall assist United States authorities in obtaining information, including means of
verification, for the purpose of reviewing transactions for which duty-free access into the U.S.
is claimed, in order to verify compliance with applicable conditions, and to prevent unlawful
transshipment of articles not qualified for duty-free access into the U.S.
ARTICLE V
AMENDMENTS
Annexes to this Protocol shall be amended by the QIZ Joint Committee and upon approval by
the United States.
ARTICLE VI
ENTRY INTO FORCE
This Protocol shall enter into force upon the notification of both Parties on the completion of
the necessary legal procedures required by them for the entry into force of this Protocol.
Done at Cairo, Egypt on December 14, 2004, in two original copies in the English language.
For the Government of the Arab Republic of Egypt For the Government of the State of Israel
D-4
Annex A. QIZ
Factories in QIZ
Industrial Cities in QIZ
Greater Cairo QIZ
Cairo Cotton
Dice
E.T.C.
Samir Flaneles
Delta
Tenth of Ramadan
Fifteenth of May (Helwan)
South of Giza
Shobra El-Khema
Nasr City
Alexandria QIZ
El-Amria (Bourg El-Arab),
Alexandria
Suez Canal Zone QIZ
Port Said Industrial City
APPENDIX D
Annex B. QIZ Joint Committee

1. A QIZ Joint Committee shall be established, in accordance with Article II of the Protocol,
with two co-chairpersons: an Egyptian appointed by the Egyptian Government, and an Israeli
appointed by the Israeli Government. A representative of the United States may attend the
meetings as an observer
2. The responsibilities of the QIZ Joint Committee shall be to:
Supervise the implementation of the QIZ Protocol
Verify full compliance with the QIZ requirements
Issue and/or cancel certificates pursuant to Article E of the Protocol;
Determine the lists of companies pursuant to Article F of the Protocol;
Prepare an annual report that to be submitted to the relevant Ministers
3. The QIZ Joint Committee shall carry out its responsibilities on a quarterly basis as per the
following periods:
January 1March 31
April 1June 30
July 1September 30
October 1December 31
(hereinafter: quarters)
4. The certificate issued by the QIZ Joint Committee, pursuant to Article E of the Protocol,
shall include the following information: name, address, tel. /fax numbers, e-mail address and
contact person.
5. The QIZ Joint Committee shall convene quarterly, pursuant to Article II.B of the Protocol,
in order to determine the list of companies, in accordance with Article F of the Protocol. The
hosting Party shall issue an invitation to the other Party for a date after which both Parties
have received the documents mentioned in paragraphs 6A and 6B below, but no later than 45
days after the end of the previous quarter. The meeting of the QIZ Joint Committee shall take
place on a mutually agreed upon date, within 10 days from the proposed date.
6. In order for the QIZ Joint Committee to determine the lists of companies to appear on the
lists pursuant to Article F of the Protocol the following procedures must be followed:
A. The company shall provide its Authorities evidence of full compliance with all the
requirements of the QIZ Protocol for the previous quarter, no later than 15 days from the end
of each quarter. This evidence shall include the following:
a. Name of company, address, tel./fax numbers, e-mail addresses, contact person,
b. Type of products exported,
c. Type of input purchased, documented by copies of invoices from Egyptian/Israeli

suppliers and list of Egyptian/Israeli suppliers in the last quarter, including contact
persons,
D-5
D-6
APPENDIX D
d. Total export of the company to the United States under the QIZ duty free treatment for
the previous quarter, supported by relevant documents.
B. The authorities of the Party receiving the documents and evidence shall submit to the
authorities of the other Party, no later than 30 days from the end of each quarter all quarterly
data as specified in paragraph 6.A. above.
C. The QIZ Joint Committee shall verify the data specified in paragraph 6.A. in order to
determine whether the requirements of the Protocol, particularly Article II.D., and the
Annexes, particularly paragraphs 9, 10 and 11 of Annex B, have been fulfilled.
7. The Joint Committee shall issue the quarterly lists according to the following:
A. A company that fulfills the requirements of the Protocol and its Annexes shall appear on
the list for the first two quarters following the entry into force of the Protocol.
B. For the periods that follow the first two quarters after the entry into force of the Protocol :
i. The QIZ Joint Committee shall determine the list for the following quarter, based on the
companys fulfillment of the requirements of the Protocol and its Annexes for the
previous quarter.
ii. Companies that have not previously exported under the QIZ Protocol, and that request
to be included in the list determined by the QIZ Joint Committee after a quarter has
already begun, will not be required to report until the end of the next full quarter.
8. If any Party fails to attend the quarterly QIZ Joint Committee meeting as required in Article
II.B. of the Protocol, the Party that has attended the meeting may carry out the responsibilities
of the QIZ Joint Committee. If the hosting Party fails to issue the invitation to the other Party
to attend the meeting, the other Party may carry out the responsibilities of the QIZ Joint
Committee.
9. The Israeli inputs that shall be recognized for the purpose of the QIZ must be direct
relevant inputs.
10. The QIZ Joint Committee shall not recognize inputs purchased from Israeli enterprises as
fulfilling the minimum content required from Israeli manufacturers unless those inputs fully
comply with the rules of origin as stipulated in the U.S.-Israel Free Trade Area Agreement.
11. Compliance with criteria set forth in Article II.D. of the Protocol will be calculated on the
basis of total duty free export to the United States under the QIZ on a quarterly basis per
company and in accordance with the conditions set forth in paragraphs 9 and 10 above.
12. In the event the QIZ Joint Committee finds that a company fails to comply, for any
reason, with the requirements of the QIZ Protocol and its Annexes, the following steps shall
be taken:
a. for a first-time failure - the company will not be eligible for QIZ approval for the
following quarter.
b. for a second-time failure - the company will not be eligible for QIZ approval for the
following two quarters.
c. for every failure beyond the second time - the company will not be eligible for QIZ
approval for the following four quarters.
13. In case there is a need for additional data in order to verify QIZ compliance, the QIZ Joint
Committee may request the U.S. Customs Authorities to provide the necessary data.
14. In case the QIZ Joint Committee finds during the implementation of the above mentioned
procedures a need to amend these procedures, it will submit a proposal to the Minister of
Foreign Trade and Industry of Egypt and the Minister of Industry , Trade and Labor of Israel,
for their approval.
D-7
APPENDIX E. QIZ UNIT OVERVIEW

GOAL MISSION AND MANDATED TASKS
The QIZ Unit is located in the Ministry of Industry and Foreign Trade (MIFT). It is part of the
Technical Office of Minister and was created to serve as an executive and technical support
unit for the Egyptian side of the Joint Committee that is vested with managing the
implementation process of the terms of the Protocol (see Appendix D). According to its
website, the units goal is to maximize the value that qualified Egyptian companies can
obtain from the flow of custom-free Egyptian goods to the United States. The QIZ Units
stated mission comprises three tasks:
QIZ MISSION STATEMENT
Enable successful implementation of the QIZ Protocol
Act as the implementation arm for Egypt on the Joint Committee17
Coordinate with the other stakeholders in government and private sector
According to information on the website the Unit is mandated to carry out many tasks, the
most of important of which are:
Receiving applications from the Egyptian companies located in the QIZ designated zones
and willing to be included in the List of companies entitled to the U.S. customs
preferential treatment under the QIZ protocol.
Reviewing merits of such applications in terms of their meeting all geographic and rules
of origin requirements of the Protocol.
Auditing compliance of the companies on the QIZ list in order to determine whether they
still meet qualification requirements, hence remain on the List or be suspended if found
noncompliant.
Serving as an information center for local and foreign businesses interested in doing
business under the terms of the QIZ protocol.
Providing decision support services to members of the Egyptian side of the Joint
Committee through compiling data and statistics on all QIZ-related activities, analyzing
this information and putting forward recommendations accordingly.
All the above are primarily technical and reporting functions but the same website also lists
matchmaking and investment promotion as activities within the scope of the QIZ
17 The Joint Committee is established by Article II of the Egypt-Israel QIZ Protocol; it is comprised of
representatives of Egypt and Israel who confer on and administer QIZs in quarterly meetings.
E-2
APPENDIX E
responsibility to help make maximize the value of the QIZ protocol opportunity to qualified
Egyptian businesses.
QIZ ORGANIZATION AND RESPONSIBILITIES

The QIZ Unit website describes the unit as having five departments: Administration,
Communication and Information, Matchmaking, Promotion and Business Development and
IT & Decision Support. Currently the unit seems to operate using a simpler model of three
working groups, each comprised of four staff members that focus on its three core
responsibilities:
Registration and Joint Committee
Audit
Data Collection and Analysis
The following summary of the unit procedures and tasks is derived from meetings with QIZ
officials, the QIZ Unit website, interviews with QIZ producers, and the TFP teams prior
studies of QIZ operations.18 These tasks play an integral part in Egypt meeting its
responsibilities in its joint management of QIZs with Israel and assuring that QIZ exporters
meet U.S. requirements for the QIZ program. Collectively these efforts help to assure the
integrity of a program on which the U.S. government places high priority.
The tasks of the unit are:
Registration of QIZ companies: The Unit administers applications by firms submitted

in part through an on-line application system to be designated as eligible to participate in
the QIZ program. The companies must be located in a Qualifying Industrial Zone and
verify that their products meet program requirements for Egyptian and Israeli content
requirements. All companies must re-register annually to validate their QIZ status. As of
December 2012, approximately 850 companies were registered as QIZ eligible.19
Quarterly Review: The Unit conducts a quarterly review of the activities of all QIZ
exporters. QIZ firms must submit to the Unit an Excel spreadsheet and supporting
documentation summarizing their import of Israeli materials and their exports. The Unit
reviews and verifies that all required trade procedures were followed and official stamps
are genuine and legible. To be included on the joint committee approved list of QIZ firms
for the upcoming quarter existing firms has to have demonstrated full compliance with
protocol requirements during previous quarters
Data entry: The Unit manages entry of export and import information into a QIZ trade
database which supplies trade statistics to support policy discussions in Egypt-Israel QIZ
Joint Committee meetings;
18 In 2009, a report prepared for USAID by Nathan Associates Inc. reviewed QIZ operations during an
evaluation of labor skills constraints on QIZ factories See Improving Productivity in Egypts Ready-Made
Garments Sector, Marello, Salinger and ODell, Nathan Associates Inc., May, 2009
19 The number of registered QIZ companies actively exporting in December 2012 was approximately 250.
QIZ UNIT OVERVIEW
Compliance verification: QIZ Unit compliance engineers make twice yearly visits to the
export-active QIZ companies to evaluate their risk level and ability to satisfy origin
verification requirements of U.S. Customs and Border Protection (CBP) and its Textile
Production Verification Team (TPVT)20 ;
Customer care: the Unit confers with current and prospective Egyptian exporters
regarding the eligibility of their products for QIZ benefits. It also maintains a business-tobusiness directory of potential Israeli partners and products including Egyptian suppliers
of qualifying Israeli inputs.
This annual registration process involves approximately 850 companies and the quarterly
activity reporting covers approximately 250 companies actively exporting from QIZs. The
QIZ Unit was originally planned to use and at one time employed electronic data interchange
(EDI) with its client producers for registration applications, quarterly reports, and registration
renewals. After a server failure in 2010, transactions were converted to Excel spreadsheets
received via email and uploaded manually, a less efficient and more work intensive
arrangement. The Unit has never had vehicles or mobile data processing capability despite the
need to travel to QIZ companies to conduct compliance audits, support QIZ Joint Committee
meetings and assist the government in QIZ policy decisions.
BUDGETARY STATUS
Although the QIZ Unit is in the portfolio of the Minister of Industry and Foreign Trade, it is
not included in the official Egyptian government budget. Mr. Sabry explained that the unit
relies on funding from the Operational Unit for Development Assistance (OUDA), a UNDP
special fund provided to the minister to cover personnel costs and operations. Mr. Sabry and
Dr. Korani noted that the level of OUDA funding limits the QIZ Unit staff to core functions.
Procurement and maintenance of equipment have been marginal. There is no allotment for
training, and the unit has not expanded its role into attracting investment in the QIZs.
Long-term planning and budgeting are difficult given the uncertainties of annual development
funding from OUDA and other ministerial-level demands on that funding. It is not clear that
the support from OUDA will continue indefinitely.
QIZ WEBSITE
Additional information on the QIZ Unit can be found on its website,
http://www.qizegypt.gov.eg.
20 US CBPs Textile Production Verification Teams travel to countries whose garment exports to the United
States are eligible for duty reduction under trade agreements or preference programs. Since access to reduced
duties on garments is limited to a relatively small number of beneficiary countries, the TPVT confirms that the
producers are actually making qualifying garments and that they are able to prove, through their production
records, that the apparel was not produced elsewhere and illegally transshipped to the United States. During a 2012
visit to Egypt by the TPVT they found 7 of 21 companies visited were unable to fully document and substantiate
the eligibility of their exports but it is not clear whether these companies were randomly chosen or were already
known to the QIZ Unit as high risk based on their own compliance visits.
E-3

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QUALIFIED INDUSTRIAL

Egypt Trade Facilitation Project

Advantages of QIZ Exports

QIZ Exports to Date

1. Background and Approach

USAID Assistance for QIZ

2. Brief History of the QIZ

3. Trade Volumes in Perspective

4. U.S. Tariffs Overview

5. Selected Product Groups

Light ManufacturingEngineered Products and Electronics

Processed Food Products

Impact on U.S. Jobs

Tranport and Logistics

Appendix A. Background on the U.S. QIZ Program and Egypt QIZs

Appendix C. Trade Data Analysis

4Error! Bookmark not defined.

Figure 2-3. Top QIZ Exports, by HS 4, 20002014 (2011 base year)

Figure 3-1. Major Suppliers of Apparel to the U.S. Market, 20052014

Table 2-3. Top 10 HS4-Category Exports to the United States, 20002014

Table 5-3. Egypts Top Exports of Leather Accessories, 2014

Table 5-4. Leather Accessory Exports from Morocco, 20062014

Table 5-6. Egypts Top Processed Food Products, by HS4, 2014

Customs and Border Protection

Conformit Europene (European Conformity)

Cost, Insurance and Freight

Free Trade Agreement

Generalized System of Preferences

Harmonized System (of Customs Codes)

Ministry of Industry and Foreign Trade

Ministry of Industry, Trade, and Small & Medium Enterprises

Not Elsewhere Specified

Qualified Industrial Zone

Trade Facilitation Project

United States Agency for International Development

World Trade Organization

QUALIFIED INDUSTRIAL ZONES IN EGYPT

ADVANTAGES OF QIZ EXPORTS

QIZ EXPORTS TO DATE

1 World Bank. World Development Indicators: Tariff Barriers. 2013. http://wdi.worldbank.org/table/6.6

QUALIFIED INDUSTRIAL ZONES IN EGYPT

USAID ASSISTANCE FOR QIZ

QUALIFIED INDUSTRIAL ZONES IN EGYPT

BACKGROUND AND APPROACH

5 With implementation phased in; full implementation in 2010.

2. BRIEF HISTORY OF THE QIZ

The initial QIZ designations applied

BRIEF HISTORY OF THE QIZ

Salt, Sulfur, Earth and Stone

Cotton Yarns & Fabric

A small percentage of Egypts QIZ exports is made up of foodprocessed, fresh, or

QUALIFIED INDUSTRIAL ZONES IN EGYPT

M/B undergarments, etc.

W/B knitted trousers, etc.

M/B woven shirts, etc.

M/B knitted trousers, etc.

W/G woven trousers, etc.

M/B woven trousers, etc.

An Upper Egypt QIZ designation would be expected to generate a similar profile of

the United Statesis 32 percent.

BRIEF HISTORY OF THE QIZ

(07122020) is 29.8 percent.

QUALIFIED INDUSTRIAL ZONES IN EGYPT

Vegetables and tubers